Early distribution used for college tuition

[cbryan4270]

I took an early distribution to pay college tuition.  Can I use the tuition expense for calendar 2020 and 2021 combined to offset tax burden in 2021, the same tax year I took the distribution or am I limited to the tuition expense that occurred only in tax year 2021?

[cbryan4270]

Addition:  The tuition expense for both years were for my son's undergraduate and my wife's graduate school expense.  I have 1098-T for all expenses.

[Hal_Al]

What kind of account did you take a distribution from?  IRA? 401k?   The distribution would be taxable in either case.  Using IRA money for education is an exception for the 10% early distribution penalty.  There is not a penalty exception for using 401k money for tuition.

To claim the penalty exception, you must have paid education expense in the year of the withdrawal.  You are limited to the tuition expense that occurred only in tax year 2021.

[RaifH]

Any portion of the early withdrawal that was used to pay for higher education expenses in 2021 is eligible for the exception from the 10% penalty. 

If you paid the 2020 tuition in 2021, then you could apply that towards your exemption from the 10% penalty. If you paid them in 2020, then they would not count towards getting the exemption. Also keep in mind that the exemption applies to all higher education expenses, not just tuition. It also includes books, supplies, any additional fees required for attendance, and room and board for full-time students. In addition to the 1098-Ts, keep a receipt of any additional higher education expenses you claim with your tax records. 

[cbryan4270]

Thanks for clarification on trying to use 2 years of education expense against the early distribution taken calendar 2021.  At least the 10% penalty gets offset that 2021 higher educational expenses.  

Just to validate eligibility, one of the tuition expenses for 2021 was for graduate degree my wife completed.  Tax documentation I've read states clearly undergraduate degree work at eligible institution.  Both schools are eligible, just don't want the graduate degree to be ineligible for some reason.  Married filing jointly. 

[cbryan4270]

Thanks for the clarification.  Rats...

[Hal_Al]

Yes, both grad and under grad education qualify for the IRA penalty exception.  The term used in IRS Publication is "post secondary" education.