L1: Related questionCan moneybe takenpenalty-free from an IRA to pay off student loans(under the educational exemption)as long as it from an account other than a 72t account? Thanks.
2008-02-20 12:33, By: billysi, IP: [18.104.22.168]
L2: Related questionCheck Pub 590 – I do believe that to meet the exemption it must be a current year expense – so if the loan to cover expenses was for a year prior to 2008, it probably won”t qualify.
http://www.irs.gov/pub/irs-pdf/p590.pdf- look on about page 542008-02-21 06:47, By: Gfw, IP: [22.214.171.124]
L2: Related questionOf course, if there are funds left from your 72t distributions, you can use them to pay the student loan. They are already penalty free.
Gfw is exactly correct. For distributions from a non 72t IRA, student loan payments themselves do not qualify for the penalty exception, but any amounts paid for current year qualified higher education expenses do qualify whether they were paid by loan proceeds or other proceeds. There is no tracing of the funds used. In other words, if the current direct expenses were paid and you took an IRA distribution, you can apply the exception. The problem with loan payments are they are often made in years after the expenses were incurred and paid for. In that event, the only tax benefit for loan payments is the student loan interest deduction.2008-02-21 09:59, By: Alan S., IP: [126.96.36.199]
L2: Related questionEducation Tax Credits and Tuition & Fees Deductions are based upon payments during the current year. Student Loan payments are normally paid “after the fact” in years after the current year, and usually after graduation. The only possible deductionis for Interest on Student Loans, and the income limitations often knock those out.2008-02-21 10:49, By: dlzallestaxes, IP: [188.8.131.52]