I took an early withdrawal from my traditional ira. May I offset the 10% penalty with a 529 payment (60% principal and 40% earnings) for qualified education expenses.

Forum|Forum|7 years ago
June 1, 2019
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TurboTax Deluxe Online

Best answer by Hal_Al

No, you may not count the same expenses for the 529 plan distribution and the IRA withdrawal penalty exception*. But, since you say that the total qualified college expenses are greater than the IRA withdrawal and 529 distribution combined, this should not be a problem in your case.

*For example, if you make a $10,000 529 withdrawal and a $10,000 IRA withdrawal and only paid $18,000 in expenses, you will have to decide how the allocate the the $18,000 between the two tax breaks.

It gets more complicated, as you are probably claiming one of the education credits. You may NOT count the same expenses for a 529 plan withdrawal that your count for a tuition credit. But, you MAY count the same expenses for the IRA penalty exception that you count for a tuition credit.

SweetieJean

Alumni - Champ

Are you also using the IRA to pay education expenses?

Tykester66Author

Level 2

Yes. The total qualified college expenses are greater than the ira withdrawal and 529 distribution combined

Hal_Al

Answer

Level 15

*For example, if you make a $10,000 529 withdrawal and a $10,000 IRA withdrawal and only paid $18,000 in expenses, you will have to decide how the allocate the the $18,000 between the two tax breaks.

Tykester66Author

Level 2

OK - I agree with your first part answer. However, the information I think you're missing is that our total expenses were 55k (tuition, room&board, 2 kids in college). Given this new information, I think you'll agree that there is no kiddie tax on the 25k from 529.