Avoiding 10% early IRA withdrawal penalty using room and board expenses

Forum|Forum|4 months ago
February 1, 2026
1 reply
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My wife and I are married filing jointly. She has been a full-time undergraduate student in Spring 2025 and a half-time undergraduate student in Fall 2025. She receives VA Chaper 35 benefits, which are deposited into her account directly every month (basic housing allowance). She withdrew $3,000 from her IRA at the beginning of 2025. We live together in an apartment. Her university does not offer on-campus housing, but lists the cost for housing and food as $7,500 per year in their cost of attendance overview.

Can we avoid the 10% penalty for the early IRA withdrawal on grounds that it was used for education expenses? Since she was at least half-time for both spring and fall, and the amount the university lists for housing and food is greater than the withdrawal, it should be possible. I know that the VA housing allowance does not need to be reported as taxable income or need to be considered when adjusting the qualified expenses for purposes of claiming the American Opportunity Tax Credit (which we will want to claim for the expenses on her 1098-T). But I was wondering whether the VA benefits would preclude us from claiming room and board expenses to avoid the 10% penalty. I know the IRA withdrawal will be taxed as ordinary income regardless.

Thank you in advance!

Hal_Al

Level 15

Q. Will the VA benefits would preclude us from claiming room and board expenses to avoid the 10% penalty, on the IRA distribution?

A. No, for several reasons. One reason is that the penalty exception still applies even if the expense was covered by other funds or tax benefits. That is, there is no "double dipping" restriction. For example, you could pay tuition with the IRA money and still claim both the American Opportunity Tax Credit (AOTC) and the 10% penalty exception on the IRA.

bla_bla_123Author

Level 2

Thank you! To follow up: Are the living arrangements of the student irrelevant as long as the IRA withdrawal amount (which would be allocated toward room and board) does not exceed what the university lists as room and board in their cost of attendance? Her university does not offer on-campus housing, but even if they did, and she chose to live off-campus, would it matter?

Hal_Al

Level 15

Q. Are the living arrangements of the student irrelevant as long as the IRA withdrawal amount (which would be allocated toward room and board) does not exceed what the university lists as room and board in their cost of attendance?

A. Yes. The rule is your actual cost or the COA whichever is less.

Your penalty free IRA distribution is limited to the total cost of tuition, fees, books, supplies, equipment, computers, and, if enrolled half-time, or more, room and board, regardless of the fact that she got VA benefits and claimed the AOTC.

Edited 2/1/26