Roth IRAs & Educational Expenses Guide

Paying for Qualified Educational Expenses with your IRA

Many people are aware that tapping your Roth IRA before 59 ½ the government will tax you an extra10% for the early distribution. This tax is to encourage people to keep saving for their retirement, or later years. This special tax applies to Roth IRAs, traditional IRAs, a SEP-IRA or a SIMPLE IRA (for a SIMPLE IRA, the tax maybe as high as 25%).

On the other hand, there is an exception for educational expenses.

Qualified Expenses
If your educational costs qualify as qualified higher educational expenses, you can take a distribution from your Individual Retirement Account without being penalized by the additional 10% tax. You are qualified for the distribution if you pay the qualified higher educational expenses for the following:

• yourself
• your spouse
• your child
• your spouse’s child
• adopted child
• foster child
• or descendant of any of the previous.

Qualified Institutions
The qualified higher educational expenses must be incurred at a eligible educational institution as determined by the U.S. Department of Education.

Income tax might be owed on at least part of the amount distributed.

AQEE
None of the distribution is subject to the additional tax so long as the taxable part of the distribution is less than or equal to Adjusted Qualified Education Expenses (AQEE). When the taxable part of the distribution is greater than the AQEE, then the extra amount will be subject to the supplementary tax.

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