Question

If I take a Roth IRA withdrawal early to pay for education expenses, will I be subject to a retirement-plan early-distribution penalty?

Answer

You won’t have to pay the early-distribution penalty 10% additional tax on your Roth IRA withdrawal if all of these apply:

  • The amounts withdrawn aren’t more than your, your spouse’s, your child’s and/or your grandchild’s qualified higher-education expenses paid during 2021. Your child or grandchild doesn’t need to be your dependent for the withdrawal to qualify for the exclusion.
  • The amounts withdrawn are either:
    • From your original Roth IRA contributions
    • Not from your original Roth IRA contributions, but it’s been more than five years since you first contributed or converted money into a Roth IRA

These are qualified higher education expenses:

  • Tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution
  • Expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance.

Also, if the individual is at least a half-time student, room and board are qualified higher education expenses.

An eligible educational institution is any of these that can participate in the student aid program administered by the U.S. Department of Education:

  • College
  • University
  • Vocational school
  • Other post-secondary educational institution

The educational institution should be able to tell you if it’s eligible.

 

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