IRA Withdrawal for Education

IRA Withdrawal for Education

Penalty-free distributions have been available beginning January 1, 1998 from IRAs if used to pay higher education expenses for a taxpayer or spouse, and any child or grandchild of either. Effective January 1, 2002 the annual contribution limits increased from $500 to $2000 and expansion of the rules allows that these funds may now also be used for elementary and secondary education expenses, as well as higher education expenses.

This includes:

  • tuition
  • fees
  • books
  • supplies
  • required equipment
  • room and board
  • graduate courses

The amount of education expenses is reduced by tax-free scholarships and other tax-free assistance.

NOTE: Penalty-free education distributions cannot be made from qualified retirement plans.

Qualified plan participants whose plans permit, may want to consider transferring funds to an IRA for penalty-free educational distribution.

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