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Using IRA for Educational Expenses - Allowable amount?

In calculating the amount that I can withdraw from an IRA to use for educational expenses that will be exempt from the early withdrawal penalty, can I include the amount of loans incurred in a particular year? Or would those amounts only be eligible in the year that you pay back funds on the loan?
Thanks,
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Loan transactions don't enter into the picture at all. The adjusted amount of qualified education expenses paid during the year, as described in Publication 970, is what matters. Expenses paid from loan proceeds are treated the same as expenses paid from savings or current income.
Phil Marti VITA/TCE Volunteer Clarksburg, MD
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Phil Marti
On Sat, 28 Jul 2012 07:34:11 EDT, Phil Marti wrote:
qualified education expenses paid during the year, as described in Publication 970, is what matters. Expenses paid from loan proceeds are treated the same as expenses paid from savings or current income.
Umm... I don't really follow you.
Example: Tuition cost $40K. I pay $30K out of pocket and take $10K in loans.
I know I can take $30K from my IRA without penalty payment (but with tax payment).
Can I take the $10K that was covered by the loan in the year I get the loan, or can I take it later as I pay back the loan? Note that when I pay it back, I will no longer be a full-time student, so do I miss out on ever being able to use the IRA money to cover that education cost without the 10% penalty?
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of qualified education expenses paid during the year, as described in Publication 970, is what matters. Expenses paid from loan proceeds are treated the same as expenses paid from savings or current income.
Well... Phil answered your question. What matters is how much you spent on qualified expenses adjusted for certain tax-free grants. So... if you spent $40K, you must subtract from that $40K, your tax-free scholarships, fellowships, grants, VA benefits and employer provided assistance. If you took a distribution from a CESA, then you must also subtract the amount of expenses used to figure the tax-free amount of CESA distributions. Let's say that comes to 10K, such that you are left with $30K of adjusted expenses. That's the amount you can withdraw from your IRA and avoid the early withdrawal penalty. It doesn't matter how you came by the funds to pay that $30K: savings, earnings, inheritance, gifts, loans, etc.
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Alan
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Alan
Loan repayments are not a qualified education expense, so you cannot use them in calculating the penalty-free portion of IRA withdrawals. Tuition is a qualified expense only for the year in which you paid it.
Phil Marti
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In article ,
You can take $40K: you borrowed $10K, put it in your pocket, and then paid $40K tuition out of your pocket.
Neither (you might get the loan in Dec 2011 and pay tuition in Jan 2012). The year that matters is the year you pay the tuition.
Seth
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Seth
Pardon me if I appear a dullard about this...but I want to make sure I have it right.
So, the school charges me $40K. We get a loan from the Feds that covers $3K. The loan goes direct from the Feds to the school.
My allowable IRA withdrawal for qualified expenses is $40K, even though my actual out-of-pocket was $37K.
Correct?
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Correct, assuming that the entire amount is "adjusted qualified" expenses as described in Pub 970.
Phil Marti VITA/TCE Volunteer Clarksburg, MD
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described in Pub 970.
For the Op, mind if I add -
formatting link

Do not reduce the qualified education expenses by amounts paid with funds the student receives as - (among the list is "loans.")
It's another question why one would withdraw from an IRA, and take the loan as well, but IRS doesn't care.
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JoeTaxpayer
On Sat, 25 Aug 2012 06:11:20 EDT, Phil Marti wrote:
described in Pub 970.
Sorry... this is going to get a little long winded, but I'm very confused now after getting some additional info from the school :-(
The school prepares a 1098. It lists only what is *billed* to the student along with the amount of any scholarships/grants provided by the school. If the students gets Federal Loans, those are NOT included in the amount listed as *billed* on the 1098 according to the school... only the amount actually billed to the student for payment is listed. The school bills on a _school_ year basis.
On the other hand, we pay thorough Sallie May, from September through March in monthly installments, for the _school_ year which runs September through May _across_ tax years.
Since my taxes run on a calendar year, not school year, and since this rolls from year to year, I make payments from January to March for the "previous school year", and then September through December for the "current school year".
How the heck do I figure out what the "allowable" expenses are? I was assuming it was actual out-of-pocket expenses from Jan to Dec of the calendar/tax year, regardless of when it was billed for (a cash basis approach like most tax matters). That seems the most reconcilable approach for me or the IRS. But, that leaves the loans paid directly to the school out of the picture. It also leaves the 1098 being somewhat irrelevant.
So, I'm very confused at how to reconcile this. We never actually get "billed" for the loans, and unless the IRS gets a feed from whoever does the student loans they don't even see these amounts. In addition, the school "billing" amounts do not in any way match to the tax year i.e. the school sends a large bill in Sept, but the amounts I've paid during the calendar/tax year are very different since payments cross tax years,
Is it reasonable to take the approach that the "allowable" expenses are the out-of-pocket payments for the calendar/tax year plus the amount of the loans disbursed to the school during the calendar year? I can't see any way of matching the amounts from my side. Also, if we try to do it based on "billing", then in the Senior year there will be no billing (it will have happened in the previous September) but there will be expenses that I will never get to claim as "allowable" against IRA withdrawals.
One last thought... don't these figures all also impact what the allowable deductions are under the tuition deduction tax credits?
Ugh... help appreciated.
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described in Pub 970.
See my reply of 8/2/12. It has your answer. Form 1098s issued from the schools are effectively worthless. We never use them. We have each student login to their school account and provide a print out of what was actually paid. From that we and the client make the determination of what was spent on a qualified expense for the tax benefit being used. The print out will reflect the scholarship money directly received or provided by the school and it will reflect any refund paid to the student because there was an excess. We then only need to know two additionl facts 1. Were there any scholarships received by the student directly and 2. How much was spent on a qualified expense that is not reflected on the school's accounting print out.
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