How do I calculate the amount that can be exempt from the IRA 10% early withdrawal penalty when paying kids college expenses?

[theobies10]

The bill from the college includes tuition, meal plan, room/board  fees and also has payments from her loans & scholarships and does not show where each payment source was applied?

[dmertz · Accepted solution]

The amount of a 2017 IRA distribution that is exempt from the 10% early-distribution penalty is the amount that you paid for qualified higher-education expenses during 2017.  Simply total up all of the qualified higher education expenses paid (and not otherwise reimbursed) and enter that number (not to exceed the amount of the IRA distribution) in the penalty exception box for higher-education expenses.  Include those amounts paid with loans since loans must be paid back.  (The loan repayments themselves are not qualified higher-education expenses.)

[theobies10]

Can I assume then the payment I made from the IRA distribution amount to the school was for tuition and fees and her loans and scholarships went towards meal plan and room & board?

[dmertz]

Cash is fungible; it doesn't matter which particular dollar went where.  Simply total up all of the expenses paid during the year with funds from any source, subtract the amount amount of that paid by scholarships or grants, and that's the amount of the IRA deduction that is exempt from penalty.  Do not subtract the amount of the loans; loans are money that must be paid back, they are not reimbursement.

[blueberrymum]

Where is the "Penalty Exemption Box" on the Roth IRA for school in TurboTax.   I KNOW my Roth qualifies.   However, I am paying $800 in taxes in a $2000 withdraw per Turbotax and I have no way in the world to tell it that it is a school expense.

[dmertz]

An early Roth IRA distribution would have code J in box 7 of the Form 1099-R.  Click the Continue button on the Your 1099-R Entries page and be sure to answer all of the follow-up questions.