What qualifies as higher education to avoid 10% early withdrawal penalty from my IRA

[ryan-m-nielsen]

I took money from my IRA to pay off some debt. My wife is currently in school and we are using student loans to pay for school. Can I use the cost of her tuition for high education deduction to lower the amount I have to pay the 10% penalty on?

[MargaretL · Accepted solution]

Yes, you can use the cost of the tuition.  For the purposes of the 10% additional penalty exception, higher education means costs of tuition, fees, books, supplies and equipment to a post secondary school (college, university, vocational schools) eligible to participate in a student aid program administered by the U.S. Department of Education.  It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) post secondary institutions. 

Note: living expenses are not allowed for the additional 10% penalty tax exceptions on early distributions.  

[kyledbrock]

The Note is incorrect. According to the IRS room and board are allowed without penalty as long as the student is at least a half time student.

[s-zeidan]

is this still correct for 2018? Also what if the student gets off campus housing?

[donnajenn]

Yes, that's what Publication 970 says for 2018.   It says you are allowed up to the "customary rate" for your university.  Just really didn't know how to document when filing online.

[masimone]

Fees, books, supplies, equipment, etc. must be required for enrollment.  Also, computers, software, and internet might qualify as higher education expenses for purposes of the 10% penalty exception.

[djslelledge]

Would this include paying off a Parent Plus Loan.  Example:  $10K parent plus loan awarded and deferred until graduation.  The tuition portion is $10K and interest is $3K for a total owed $13K.  Would you  be able to use a traditional IRA early distribution and avoid the 10% on the full $13K?

I understand the $13K would be added as taxable income.  Correct.

[dmertz]

No.  Loan repayments are not education expenses even though the loan may have been used to pay education expenses.