Early Distributions from IRAs

Generally, if you take a distribution from your IRA before you reach age 59½, you must pay at least a 10% additional tax on the early distribution. This applies to any IRA you own, whether it is a traditional IRA, a Roth IRA, or a SIMPLE IRA.

However you can take distributions from your IRAs to pay qualified educational expenses without having to pay the 10% additional tax. You may owe income tax on at least part of the amount distributed, but you may not have to pay the 10% additional tax.

The part not subject to the additional tax is generally the amount of the distribution that is not more than the adjusted qualified educational expenses for the year.

Who Is Eligible?

You can take a distribution from your IRA before you reach age 59½ and not have to pay the 10% additional tax if, for the year of the distribution, you pay qualified education expenses for:

• Yourself
• Your spouse, or
• Your or your spouse's children or grandchildren

Qualified education expenses — For purposes of the 10% additional tax, these expenses are tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. They also include expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance.

Eligible Educational Institution — An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes nearly all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

Half-time student — A student is enrolled "at least half-time" if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing as determined under the standards of the school where the student is enrolled.

For more information about the early distributions from IRAs, check out IRS Publication 970 — Tax Benefits for Higher Education. We also recommend you consult with a tax professional before withdrawing funds from your IRA to ensure that this approach is best for your situation.