Question

Farley, age 45, wants to withdraw $10,000 from his traditional IRA to pay tuition and fees for his son who attends Any University. Which is true?

a.) There will be a 10% early withdrawal penalty on this withdrawal.
b.) There will be a 10% early withdrawal penalty and income taxes on this withdrawal.
c.) There will be no early withdrawal penalty on this withdrawal.
d.) This withdrawal would not be allowed.

Answer 1

There will be no early withdrawal penalty for Farley withdrawing $10,000 from his traditional IRA to pay for eligible education expenses for his son, but income taxes on the withdrawal will still apply.

Step-by-step explanation:

Farley, age 45, wants to withdraw $10,000 from his traditional IRA to pay tuition and fees for his son who attends Any University. The correct statement regarding this scenario is c) There will be no early withdrawal penalty on this withdrawal.

The Internal Revenue Service (IRS) provides an exception to the early withdrawal penalty for distributions from traditional IRAs when the funds are used for qualified higher education expenses, which include tuition and fees for the IRA owner, their spouse, or dependents. However, while the 10% early withdrawal penalty may be waived in this case, income taxes will still apply to the distribution. It's important to note that tax laws are subject to change, so one always needs to check the current regulations.