One of the few limited exceptions that allows you to withdraw money from your traditional IRA before you turn 59 1/2 is to pay for the higher education expenses for yourself, your spouse or your dependents. Each financial institution has its own form for withdrawing money from your IRA that you must submit to withdraw the money and then you must complete and attach Form 5329 to your tax return so that you can avoid the 10 percent penalty for non-qualified withdrawals. However, you will still need to pay income taxes on the withdrawal.
Instructions
1. Complete the required forms with the financial institution that manages your IRA. Once the money has been disbursed you can use it for your higher education expenses.
2. Write the total amount withdrawn on Line 1 of Form 5329.
3. Compute the maximum amount you can claim as a qualified withdrawal from your IRA. If you attend school less than half-time, you can only include tuition and mandatory fees and supplies. If you attend at half-time or more, room and board can be included in the maximum amount of your qualified withdrawal. From the total expenses, you must subtract any tax-free aid you receive like scholarships.
4. Write the total amount of the withdrawal that is qualified on Line 2. If the amount that you are qualified to withdraw is greater than the amount you withdrew, write the amount you withdrew. In the space next to Line 2 for the reason for the early withdrawal, write "08".
5. Write the difference between the amount you withdrew and the amount you were qualified to withdraw penalty-free on Line 3. If your entire withdrawal was qualified, the amount should be $0.
6. Write the total amount of the withdrawal on Line 15 of your tax return so that it is included in your taxable income. Even though it is penalty free it is not tax free.
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