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.