IRA cash for education expenses
I have a question. Let's say you take money out of a rollover IRA
(former 401(k) money) to help defray college expenses for a dependent.
What kind of proof would you need to avoid paying the 10 percent
penalty that would satisfy the IRS that the money was used for college
expenses? Would you need to furnish that proof somehow? Thanks for
If you take money from your IRA before reaching
the age of 59½, you must include the withdrawal in income.
You can be subject to an additional tax of 10 percent for early
withdrawal unless it is for an accepted purpose. If you are less
than age 59½, and if you paid expenses for higher education
during the year, part (or all) of any distribution may not be subject
to the 10 percent additional tax. It doesn't matter if you used
the IRA funds directly or indirectly to pay the expenditures. For
example, you can pay education expenses from wages, loans or gifted
funds and later take a distribution to replace those resources.
Qualified higher education expenses include tuition,
fees, books, supplies and equipment required for the enrollment
or attendance of a student at an eligible educational institution.
In addition, if the individual is at least a half-time student,
room and board expenses are considered qualified higher education
expenses. (This differs from the treatment for education credits
and deductions, as room and board expenses are excluded from eligible
expenses in that category.) The education must be for you, your
spouse or the children or grandchildren of you or your spouse.
You rarely are required to submit proof of any deductions
with a tax return. However, you need to keep sufficient documentation
to substantiate deductions and exclusions on your tax return. Obviously,
keeping track of tuition and books is easy from the receipts or
statements from the institution (such as a 1098-T).
But getting your kid to keep copies of his meal receipts will probably
drive him crazy and consequently he'll hate you for this, and blame
you for everything that goes wrong. I hope you'll get a kind
revenue agent who will understand your kids and give you a break
on some sort of per-diem basis.
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