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Author: pottsch One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: roth early distribution Date: 2/24/2012 1:30 PM
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my wife works and has contributed to a roth in the past. She is going back to college and we would like to use the roth for tuition and other needed items for school ie. books, uniforms, computer and parking fees.

Would she be penalized for taking an early distribution for these things?
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Author: Incomeonly Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70210 of 74759
Subject: Re: roth early distribution Date: 2/24/2012 2:59 PM
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Assuming this is her own Roth IRA (not one connected to an employer retirement plan such as a 401(k) or 403(b)), assuming she is not yet 59.5 and assuming she has not made a Roth conversion in the past 5 years, then she may withdraw her CONTRIBUTIONS she has made over the years, without tax and without penalty. If she withdraws more than her cummulative contributions (i.e. if she withdraws the earnings from her past contributions), she will have to report this amount as ordinary income for the year and be subject to a 10% early withdrawal penalty.

If she is at least 59.5 when she makes her withdrawal, and providing she has held a Roth IRA for at least 5 years, all withdrawals will be tax free.

If she is completing a FAFSA and makes a Roth withdrawal that year, the next year she'll have to report on her FAFSA the withdrawal amount as income.

A traditional IRA has different rules...but I won't go into that, as you didn't ask.

BruceM

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Author: spinning Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70212 of 74759
Subject: Re: roth early distribution Date: 2/25/2012 12:20 AM
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If she withdraws more than her cummulative contributions (i.e. if she withdraws the earnings from her past contributions), she will have to report this amount as ordinary income for the year and be subject to a 10% early withdrawal penalty.

I think that early withdrawals above the contributions used for educational expenses are subject to income tax but not the 10% penalty.

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70213 of 74759
Subject: Re: roth early distribution Date: 2/25/2012 12:40 AM
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For details on the education exemption see IRS Publication 590 available on line from the irs.gov website. Check the Education listing in the index for the page number.

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Author: Incomeonly Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70214 of 74759
Subject: Re: roth early distribution Date: 2/25/2012 1:05 PM
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I think that early withdrawals above the contributions used for educational expenses are subject to income tax but not the 10% penalty.

Yes, it should have said ...and NOT be subject to the 10% penalty for qualifying educational expenses.. Note however that some of the expenses the OP referres to would not be qualifying education expenses for avoiding the 10% penalty, such as parking and uniforms, unless it was for a special needs student.


http://www.irs.gov/pub/irs-pdf/p970.pdf p.58

BruceM

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Author: pottsch One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70300 of 74759
Subject: Re: roth early distribution Date: 3/7/2012 10:45 PM
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Thanks Bruce

SP

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