We are withdrawing from a PERA (Colorado) retirement account, and under age 59. Do education expenses qualify in lieu of the 10% tax penalty - like an IRA does?

[Tris919]

We are under age 40 and needing to cash the retirement due to job loss.  Being in college, we would like to avoid the 10% IRS penalty and put the funds toward college expenses - IRA does allow this, but I can't find any info to see if PERA Colorado does?

[LudwigVan_fan]

This may help you

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distri...

I'm assuming your PERA account is a type of qualified plan.  The chart says no for Education.  See IRC Section 72(t)(2)(E).

Instead of withdrawing, you might consider a loan?  That would avoid taxation completely, including the penalty

Just be sure you pay it back either before retiring or under the loan terms.

[SweetieJean]

due to job loss

Many plans do not permit loans unless you are still employed there.  How about rolling it into an IRA, and then taking a distribution from that?

[LudwigVan_fan]

Sorry...I missed the "job loss"...must have glossed over it

[Tris919]

Thanks for that information.  You’ve been helpful. Not our government though. There is no reason to make education exempt. What a sad government we have to choose taking money that isn’t even theirs as a “penalty” for not being “old enough” to access it,  instead of helping a family with earning an education. So now we will go further into debt for school just so we can give our hard earned money to the IRS.  I’m 

[LudwigVan_fan]

@Tris919  You might do as @SweetieJean suggests.  Create an IRA, roll the money from the PERA into the IRA and then take a distribution.

However, taking a distribution will mean paying tax on that now, but no penalty if used for education.

The reasoning behind the 10% early withdrawal penalty is to "encourage" people not to use up their retirement savings, but to keep the savings until retirement.

You might want to consult a financial planner

[SweetieJean]

@LudwigVan_fan IRA plans cannot legally issue loans, so OP would need to take a distribution.

Retirement Plans FAQs regarding Loans | Internal Revenue Service (irs.gov)

[LudwigVan_fan]

@SweetieJean   Guess I need to read more carefully, been away from some of these things for too long 🙄