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Has anyone here withdrawn from an IRA early to pay for tuition? My bank (Bank of America) is telling me that they will assess all the IRS imposed penalities even after I explained to them that I was withdrawing for education purposes. Is this correct? Do I let them take out the penalities now and then try to get it back when I file my tax return? If anyone has done this, please let me know how it works!

Thanks!!!

CoutureChiq wrote:Has anyone here withdrawn from an IRA early to pay for tuition? My bank (Bank of America) is telling me that they will assess all the IRS imposed penalities even after I explained to them that I was withdrawing for education purposes. Is this correct? Do I let them take out the penalities now and then try to get it back when I file my tax return? If anyone has done this, please let me know how it works!

Thanks!!!

You can withdraw everything you want without any penalties. You may have to sign a form depending on the policy of the custodian (in this case Bank of America.) BOA will withhold as much or as little as you want.

Whether or not you owe a penalty is none of their concern; they'll report it as an early distribution with no known exception (Code 1) and you'll tell the IRS that you used the money for educational expenses and therefore owe no penalty. Form 5329 handles this, and any basic tax software will make it easy.

Assuming this is all pre-tax money, the distribution will be taxable as income. If it is a Roth IRA, the story is a little different, but in a good way.

Tiago Splitter wrote:

CoutureChiq wrote:Has anyone here withdrawn from an IRA early to pay for tuition? My bank (Bank of America) is telling me that they will assess all the IRS imposed penalities even after I explained to them that I was withdrawing for education purposes. Is this correct? Do I let them take out the penalities now and then try to get it back when I file my tax return? If anyone has done this, please let me know how it works!

Thanks!!!

You can withdraw everything you want without any penalties. You may have to sign a form depending on the policy of the custodian (in this case Bank of America.) BOA will withhold as much or as little as you want.

Whether or not you owe a penalty is none of their concern; they'll report it as an early distribution with no known exception (Code 1) and you'll tell the IRS that you used the money for educational expenses and therefore owe no penalty. Form 5329 handles this, and any basic tax software will make it easy.

Assuming this is all pre-tax money, the distribution will be taxable as income. If it is a Roth IRA, the story is a little different, but in a good way.

If for some reason you do have money in both a traditional IRA and a ROTH IRA, I would even suggest withdrawing from the Traditional first, as you'll be in the lowest tax bracket while in school and may end up not paying any taxes (does the standard deduction and personal exemption apply in this case? If so, you don't pay taxes on the first $9k or so) or very little taxes on that withdrawal.

M458 wrote:IRA and a ROTH IRA

Geesh, how many Irish gangs are there?

nickb285 wrote:

M458 wrote:IRA and a ROTH IRA

Geesh, how many Irish gangs are there?

There's also the dreaded roll-over IRA...