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Higher Education Exception

2019 – 06/14 The tax code imposes a 10% penalty on the taxable amount of an early distribution from a qualified retirement plan. An early distribution is one made to an employee who hasn’t attained age 59-1/2. There are exceptions to avoid the 10% penalty, including if a distribution is used to pay qualified higher education expenses. In one case, the U.S. Tax Court ruled that the 10% penalty should be partially upheld against a taxpayer with respect to an early distribution she’d received. While the exception applied to part of the distribution she’d used to pay for education expenses, she didn’t offer any evidence that the remaining portion qualified for an exception to the penalty. (TC Memo 2019-67)

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