Penalty-Free IRA Withdrawals

• Posted on April 24, 2008
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Long Island CPA Firm Offering Tax and Financial Advice

Generally, when funds are withdrawn from an IRA before a taxpayer reaches age 59-1/2, a 10% early withdrawal penalty applies to the distribution. However, penalty-free withdrawals are permitted if the funds are used to pay qualified higher education expenses. The withdrawals will still be subject to regular income tax.

Qualified "higher education expenses" include tuition at a qualified educational institution, as well as related room, board, fees, books, supplies and equipment. The expenses can be for the taxpayer, spouse, taxpayer's or spouse's children and grandchildren.

If you overlooked this exception and paid the early withdrawal penalty, the oversight can be corrected by amending the prior year's tax return. Call this office for assistance.