Proper Coding of Eaerly IRA Withdrawal

Dec 07, 2010 2 Replies

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Another Poster 15 years ago

I took and early withdrawal from an IRA for qualified educational expenses. Based on some info I got here previously, I instructed the broker (Schwab) to code it as a Type 2. I had also spoken with a representative there previously who confirmed that it should be coded at Type 2.

When I made the withdrawal, they insisted it had to be a type 1. They had two conditions for a type 2, neither of which related in any way to qualified educational expenses. They advised me that I'd need to file a 5329 to cover that.

Questions:

- Are they wrong about the coding? If so, is there a section of tax code I can extract and refer them to push for a correction?

- Should I care? Is the only difference that I have to file a 5329? Does this have any other effects?

Thanks,

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Alan 15 years ago

First off, an early IRA distribution used for qualified higher education expenses is code 8. Secondly, Schwab is correct as they do not know what you are going to do with the distribution. As such, they have to code it as an early withdrawal. You would use Form 5329 to account for the exception.

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X 15 years ago

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===The broker is not required to determine the purpose for which it is used, so you will need to file Form 5329 and on line 2 enter code 8 which is the exception for higher education withdrawals.

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