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taxmap/pubs/p970-041.htm#TXMP7dbbe624 Chapter 9 Education Exception to Additional Tax on Early IRA Distributions(p53)

Education Exception to Additional Tax on Early IRA Distributions

taxmap/pubs/p970-041.htm#TXMP02a12de7
Introduction

Generally, if you take a distribution from your IRA before you reach age 591/2, you must pay a 10% additional tax on the early distribution. This applies to any IRA you own, whether it is a traditional IRA (including a SEP-IRA), a Roth IRA, or a SIMPLE IRA. The additional tax on an early distribution from a SIMPLE IRA may be as high as 25%. See Publication 560, Retirement Plans for Small Business, for information on SEP-IRAs, and Publication 590, Individual Retirement Arrangements (IRAs), for information about all other IRAs.

However, you can take distributions from your IRAs for qualified higher education expenses without having to pay the 10% additional tax. You may owe income tax on at least part of the amount distributed, but you may not have to pay the 10% additional tax.

The part not subject to the additional tax is generally the amount of the distribution that is not more than the adjusted qualified education expenses for the year.

taxmap/pubs/p970-041.htm#TXMP504ac532 Who Is Eligible(p53)

You can take a distribution from your IRA before you reach age 591/2 and not have to pay the 10% additional tax if, for the year of the distribution, you pay qualified education expenses for:

• yourself,
• your spouse, or
• your or your spouse's child, foster child, or descendant of either of them.

taxmap/pubs/p970-041.htm#TXMP2d56fde5 Qualified education expenses.(p53)

For purposes of the 10% additional tax, these expenses are tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. They also include expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance.

As of this printing, regulations defining "students with special needs" have not been released. If available, the definition will be included in Publication 553, Highlights of 2007 Tax Changes, which will be issued in early 2008.

In addition, if the student is at least a half-time student, room and board are qualified education expenses.

The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts.

1. The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
2. The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

You will need to contact the eligible educational institution for qualified room and board costs.

taxmap/pubs/p970-041.htm#TXMP6190ffe5 Eligible educational institution.(p53)

An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

Certain educational institutions located outside the United States also participate in the U.S. Department of Education's Federal Student Aid (FSA) programs.

taxmap/pubs/p970-041.htm#TXMP516131fd Half-time student.(p53)

A student is enrolled "at least half-time" if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing as determined under the standards of the school where the student is enrolled.

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