Dear Tax Talk,
I am having my taxes done with a preparer for the tax year 2012. As a result of being unemployed for seven months, I made early withdrawals of $28,500 from my individual retirement account (I am 54 years old) to help pay my daughter’s educational expenses at San Diego State University. She is in a dorm at SDSU and has meal plans, etc.
The tax adviser says room and board is not among qualified education expenses, so it’s subject to the 10 percent tax penalty for early IRA withdrawals. In my research, however, I have found that room and board is exempt from the 10 percent penalty if the student is at least a half-time student. My daughter is a full-time student.
Please advise as to whether or not room and board is exempt from the extra 10 percent tax penalty for early IRA withdrawals.
Score one for yourself and give a boot to your tax preparer. As long as your daughter attends at least half time, her room and board expenses qualify to reduce the amount subject to early withdrawal penalty.
An early withdrawal of funds from an IRA is generally subject to a 10 percent penalty. There are certain exceptions indicated on Form 5329 that will reduce or eliminate the penalty including, for example, a first-time home purchase, excessive medical expenses and an unemployed person’s health insurance premiums.
While the Form 5329 instructions don’t describe the various qualified education expenses, they are detailed in Internal Revenue Service Publication 590. Apart from the usual tuition and fees, supplies and books are included as well. You can find a description of the qualified higher education expenses for these purposes on Page 57 of IRS Publication 590.
Ask the adviser
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.