IRA for Educational Expenses

Forum|Forum|6 years ago
July 27, 2019
1 reply
0 views

Hello,
I quit my job to go to grad school. In April to make the move and cut ties with my working life I withdrew from my Roth $5,000 to pay off my remaining financed items. Since I should be accruing about $15,000 in educational expenses this year can I avoid the 10% penalty anyway? Or would the funds need to be "earmarked".

Additional info. My employment income should be about 100k this year, filing jointly w/ 1 child. 10k in long term gains as well.

Critter

Level 15

You are allowed to take your original contributions to a ROTH ( not rolled or converted amounts) tax and penalty free at any time for any reason. So did you take out more than your original contributed amount ? Did you invade any of the earnings ?

drbilly5191Author

Level 2

Ah! Thank you. I thought the contribution was still subject to the 10%. I did not dip into any gains at all.

Hal_Al

Level 15

The 10% penalty is only applicable to the taxable amount of the distribution. Since all of your distribution was from contributions, and not earnings, none of it is taxable. So there is no penalty.

If some of the $5000 distribution had been taxable (for example, let's say $3000 was taxable) the 10% penalty would still not be applicable, as long as you had, at least, $3000 of qualified educational expenses (e.g. tuition) during the year. It is not necessary that the actual distribution be used to make payments (the funds do not need to be "earmarked") .