Am I able to withdraw funds from a Roth 401(k) without tax or penalties if used for education expenses?

Am I able to withdraw funds from a Roth 401(k) without tax or penalties if used for education expenses?

by Colleen S. Krcelich, CPA | Mar 05, 2018

I'm a 25-year-old single male living in Las Vegas. After finishing my undergraduate degree, I went into industry for about a year and contributed to a Roth 401(k). Over the year I worked, I contributed $9,750, and my current vested balance is $13,300. Since leaving that company I've returned to graduate school. I'm considering withdrawing funds from the Roth 401(k) to cover part of my expenses in lieu of additional student loans. I thought that I could count a withdrawal as a qualified distribution (not subject to penalty) if it was going toward paying education expenses, but when I looked recently, I didn't see that on the list of distributions that count as qualified. Did this recently change? If not, can I take the entire $13,300 out of the account without penalty, or can I only take an amount equal to what I pay in tuition and education related expenses? Also, if the withdrawal is not counted as a qualified distribution, would I pay the 10 percent penalty on the entire amount that I withdraw? Or could I take the first $9,750 (equal to the amount that I contributed) without penalty?

A withdrawal for education will avoid a penalty if it is used for qualified education expenses.  However, you will have to pay tax on any growth/earnings. You can withdraw your contributions tax and penalty free. 

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Answered by: Colleen S. Krcelich, CPA, is an adjunct professor at Northampton Community College in Bethlehem, Pa. 

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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