My child a full time college student is moving from the dorms into an apartment. We've been using a traditional IRA to pay for tuition and room & board. Can I continue to use the IRA money pay pay for housing now that it's non campus housing without incurring the extra 10% penalty on top of taxes?========>> even if you take money out before turning 59 1/2 years old, you can avoid the early withdrawal penalty if you use the money to pay for qualified educational expenses.The IRS offers a special EXCEPTION from the 10 % additional tax on early distributions if you use the money for higher education expenses for your child . The cost of tuition, required fees, books and supplies always qualify for the early withdrawal exception. Also, Meal plans and housing costs count as qualified higher education expenses for the early withdrawal penalty exception only aslongas your kid enrolls at least half-time by being enrolled for at least half the full-time academic work load for the course of study the student is pursuing I mean say, if your kid’s college considers 24 credits to be full-time enrollment, your kid needs to be enrolled in at least 12 credit hours to have room and board expenses qualify for the early withdrawal exception. Even if your IRA distribution goes toward paying qualified education expenses, the exception avoids only the 10 % additional tax, not your regular income taxes on the distribution. For example, assume that you pay a 25%tax rate and you take a $6K distribution to pay for your kid’s college tuition. The early withdrawal exception means you don't have to pay a $600 early withdrawal penalty, but the distribution still increases your tax liability by $1.5K.
If so what will I need for tax purposes at year end?======>>As m entioned above; You'll receive a Form 1099-R at the end of the year showing how much you withdrew. To document your exception, you must complete Form 5329. Next to Line 2, write "08" -- the code for higher education expenses. You don't have to submit your tuition statements or other receipts with your tax return, but you should keep them for your own records in case your return is audited. UNLESS your marginal tax rate is higher than 25%, you need to pay estiamted taxes to to prevent IRS penalties for underpayment