Withdrawing IRA for education tax exempt?

Forum|Forum|2 years ago
January 31, 2024
2 replies
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What do I need to do when filing for tax to prevent penalty fee if I were to withdraw 401k for education?

TurboTax Deluxe Online

Best answer by dmertz

"What if there was a distribution from an IRA account in 2023, but the education expenses were paid in 2024? The income from the IRA were paid in the 2nd week of January for the current spring semester of 2024."

That would not qualify for the penalty exception.

MinhT1

The exception to the 10% penalty for withdrawals for higher education applies only to withdrawals from an IRA account, and not from a 401(k) account.

Please read this IRS document for more information.

If this applies to you, here are the steps to follow in TurboTax.

After you have entered all your forms 1099-R, on the summary page Review your 1099-R Info, click Continue
Follow the interview until you arrive at the page titled Did you use your IRA to pay for any of these expenses?
Enter the amount of your education expenses in the box next to Higher education and click Continue
Your early withdrawal penalty will be waived.

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bobkat2022

Hi - I'm using TurboTax Deluxe 2024. I have entered several 1099R's and a portion of my early Roth IRA withdrawal was for qualified education expenses. The software never takes me to the screen that you mention in your post - where I would enter the amount that was for education expenses. When I look at Form 5329, there is nothing listed on Line H (Higher Education Expenses). Why is the software not prompting me for this number? Can I simply enter it directly on Form 5329? Thanks!

DanaB27

You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. Therefore, if you only withdrew your contributions you will not get the "Did you use your IRA to pay for any of these expenses?" screen.

Login to your TurboTax Account
Click on "Search" on the top and type “1099-R”
Click on “Jump to 1099-R” and enter all your 1099-Rs
Click "Continue" on the "Review your 1099-R info" screen after you entered all you Form 1099-R
Answer "Owned Any Roth IRA for Five Years?" screen
Continue through the questions and make sure you enter the net contributions prior to 2024 on the "Enter Prior Year Roth IRA Contributions" screen

@bobkat2022

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dmertz

Employee

Using the funds for qualified education expenses exempts the distribution from an early-distribution penalty, not from income tax, and only applies to distributions from IRAs, not from a 401(k). If your 401(k) permits you to take an ordinary distribution, you can roll the distribution over to an IRA and then take a distribution from the IRA to avoid the early-distribution penalty.

lrosas

What if there was a distribution from an IRA account in 2023, but the education expenses were paid in 2024? The income from the IRA were paid in the 2nd week of January for the current spring semester of 2024.

Can the higher education cost be included on the 2023 tax return? In order to avoid the early withdrawal penalty?