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Greetings, Caledonia, and welcome.

<<I'm a 26 year-old employee of IBM. I have about $6K in the company's defined-contribution retirement plan, called a "TDSP" in IBM-speak. I'm looking to go back to graduate school full time in the Fall of 1998. I recall hearing proposals floated in the past to allow early penalty-free withdrawals from retirement plans to pay for education expenses, but I don't ever recall such proposals being implemented. Is there an option to withdrawal money from a retirement account to cover education expenses without incurring a penalty?>>

There's no provision for a penalty-free early withdrawal from 401k plans for education. However, effective January 1 of this year provisions now exist to do so from Individual Retirement Accounts (IRA). Thus, if you transfer your defined contribution plan money to an IRA when you leave your employ (something you can do), then you may withdraw sums to pay for qualified higher education expenses such as tuition, room & board, books, supplies, and fees/equipment required for enrollment. You must pay regular taxes on those withdrawals, but escape any penalty for early withdrawal. See your benefits administrator for guidance on how to transfer your money to an IRA when you leave your job.

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