Do IRA education expense withdraws need to be for current year expenses? if I paid $5,000 in 2017, can I take that out in 2018 and avoid the 10% penalty still?

[dmertz · Accepted solution]

"if I paid $5,000 in 2017, can I take that out in 2018 and avoid the 10% penalty still?"

No.  To use the education-expense penalty exception for a distribution made in 2018, you have apply education expenses that you paid in 2018.  Education expenses that you paid in 2017 can only be applied to an IRA distribution that you received in 2017.

[davidtlund]

Thank you - what if the expense was prepaid? As in, I paid in 2017 for my 2018 semester?

[dmertz]

I can find no example in guidance from the IRS that explicitly addresses this.  IRS Pub 590-B simply refers to qualified higher education expenses paid during the year in which the distribution is made. ("if you paid expenses for higher education during the year, part (or all) of any distribution may not be subject to the 10% additional tax.")  It appears that the distribution and the payment must be in the same year.