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previous page Previous Page: Publication 970 - Tax Benefits for Education - Education Exception to Additional Tax on Early IRA Distributions
next page Next Page: Publication 970 - Tax Benefits for Education - Reporting Early Distributions
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication
taxmap/pubs/p970-042.htm#en_us_publink100021086

Figuring the Amount Not Subject to the 10% Tax(p58)


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Figuring the Amount Not Subject to the 10% Tax

To determine the amount of your distribution that is not subject to the 10% additional tax, first figure your adjusted qualified education expenses. You do this by reducing your total qualified education expenses by any tax-free educational assistance, which includes: Do not reduce the qualified education expenses by amounts paid with funds the student receives as: If your IRA distribution is equal to or less than your adjusted qualified education expenses, you are not subject to the 10% additional tax.
taxmap/pubs/p970-042.htm#en_us_publink100021087

Example 1.(p59)

In 2008, Erin (age 32) took a year off from teaching to attend graduate school full time. She paid $5,800 of qualified education expenses from the following sources.
 Employer-provided educational assistance
 (tax free)
$1,500 
 Early distribution from IRA
 (includes $500 taxable earnings)
3,200 
 Savings account1,100 
    
Before Erin can determine if she must pay the 10% additional tax on her IRA distribution, she must reduce her total qualified education expenses.
 Total qualified education expenses$5,800 
 Minus: Tax-free educational assistance−1,500 
 Equals: Adjusted qualified
 education expenses (AQEE)
$4,300 
Because Erin's AQEE ($4,300) are more than her IRA distribution ($3,200), she does not have to pay the 10% additional tax on any part of this distribution. However, she must include the $500 taxable earnings in her gross income subject to income tax.
taxmap/pubs/p970-042.htm#en_us_publink100021088

Example 2.(p59)

Assume the same facts as in Example 1, except that the assistance from Erin's employer was delayed (not received until July 2008), so she withdrew $4,500 from her IRA instead of the smaller amount. This included $700 of taxable earnings, which must be included in her income subject to income tax.
Erin's IRA distribution ($4,500) is larger than her AQEE ($4,300). Therefore, she must pay the 10% additional tax on $200, the amount of her distribution ($4,500) that is more than her qualified education expenses ($4,300), but not more than the taxable amount of her distribution ($700). She does not have to pay the 10% additional tax on the remaining $500 of her taxable distribution.
taxmap/pubs/p970-042.htm#en_us_publink100021089

Example 3.(p59)

Assume the same facts as in Example 1 and Example 2, except that Erin's early distribution from her IRA was $5,500 (including $850 of taxable earnings). The excess of her distribution ($5,500) over her qualified education expenses ($4,300) is $1,200. Because the excess distribution ($1,200) is greater than the taxable earnings ($850), Erin must pay the 10% additional tax on the entire $850 of taxable earnings.
previous pagePrevious Page: Publication 970 - Tax Benefits for Education - Education Exception to Additional Tax on Early IRA Distributions
next pageNext Page: Publication 970 - Tax Benefits for Education - Reporting Early Distributions
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication