IRA early withdrawal penalty exception for education

[ericlipkind]

If I had $25,000 in college expenses and $10,000 in scholarship, is only $15,000 allowable toward and early IRA withdrawal exception, or is the entire $25,000 allowable?

[KrisD]

The "Adjusted Qualified Education Expenses" are reduced by the "Tax-Free" assistance. 

If the 25,000 includes room and board, yes, it would be reduced to 15,000. If the 25,000 is tuition and fees only, the scholarship can be applied to room and board instead, leaving 25,000 for the early withdrawal. 

You can even apply the scholarship to the tuition (making the scholarship tax-free) and use room and board to avoid the IRA penalty. 

According to the IRS:

“Qualified education expenses. For purposes of the 10% additional tax, these expenses are tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. They also include expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance.

In addition, if the student is at least a half-time student, room and board are qualified education expenses.”

https://www.irs.gov/pub/irs-pdf/p970.pdf

[ericlipkind]

Thank you.  So in this example, If tuition was $25,000 and room and board was another $15,000 and I physically paid $25,000 and scholarship covered $15,000, how much is allowable toward avoiding the IRA penalty -- $25,000 or $40,000?

[Zbucklyo]

$25,000