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# Straight Answer: 401K to pay for MBA Tuition Penalty Free?

Author Message
Intern
Joined: 21 Aug 2011
Posts: 27

Kudos [?]: 18 [0], given: 0

GMAT Date: 04-02-2012
GPA: 3.79
WE: Corporate Finance (Investment Banking)

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27 Mar 2012, 09:59
I need a straight Yes/No answer. Can you pay for your MBA Tuition from your 401K Savings, Penalty (10%) free?

Yes/No?

Kudos [?]: 18 [0], given: 0

Senior Manager
Joined: 01 Apr 2010
Posts: 297

Kudos [?]: 59 [0], given: 11

Location: Kuwait
Schools: Sloan '16 (M)
GMAT 1: 710 Q49 V37
GPA: 3.2
WE: Information Technology (Consulting)
Re: Straight Answer: 401K to pay for MBA Tuition Penalty Free? [#permalink]

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27 Mar 2012, 11:07
From my research if I remember I came to the conclusion that I can roll over the 401k to an IRA then use the IRA to pay for tuition for qualified higher education expenses without the 10% penalty. Qualified higher education expenses I believe was limited to Tuition and Room/Board.

Kudos [?]: 59 [0], given: 11

Director
Status: 1,750 Q's attempted and counting
Affiliations: University of Florida
Joined: 09 Jul 2013
Posts: 514

Kudos [?]: 986 [2], given: 630

Location: United States (FL)
Schools: UFL (A)
GMAT 1: 600 Q45 V29
GMAT 2: 590 Q35 V35
GMAT 3: 570 Q42 V28
GMAT 4: 610 Q44 V30
GPA: 3.45
WE: Accounting (Accounting)
Re: Straight Answer: 401K to pay for MBA Tuition Penalty Free? [#permalink]

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03 Oct 2013, 23:17
2
KUDOS
I will post the rules from the IRS website below. Before I post, I wanted to say that the advice provided by aalba005 is correct. Based on the tax rules, there is a 10% early withdrawal penalty from 401k plans and other non IRA plans with no higher education exemption. However, if you roll-over the 401k or other retirement plan into a Roth IRA or traditional IRA there is an exemption for the 10% penalty on higher education expenses. So it seems like with many tax/accounting questions the answer is a Yes and No depending on the circumstances. Yes - Penalty for 401k, No - Penalty for Roth IRA/IRA. Here are the links to the IRS topic discussions

Topic 558 - Additional Tax on Early Distributions from Retirement Plans, Other Than IRAs
http://www.irs.gov/taxtopics/tc558.html

Topic 557 - Additional Tax on Early Distributions from Traditional and ROTH IRAs
http://www.irs.gov/taxtopics/tc557.html

Kudos [?]: 986 [2], given: 630

Re: Straight Answer: 401K to pay for MBA Tuition Penalty Free?   [#permalink] 03 Oct 2013, 23:17
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