IRA penalty exception for higher education

[Jesse]

Taxpayer took money out of an IRA to do some remodeling, but also had a son in college. Even though the funds were not directly paid to the school for tuition/books/room and board, the taxpayer can still receive the penalty exception.

If the qualifying expenses are paid with a student loan that is in the child's name does the exception for the early withdrawal still apply to the parent, or is that considered paid by the child and not the taxpayer?

From IRS Pub 590:
When determining the amount of the distribution that is not subject to the 10% additional tax, include qualified higher education expenses paid with any of the following funds.
Payment for services, such as wages.

A loan.

A gift.

An inheritance given to either the student or the individual making the withdrawal.

A withdrawal from personal savings (including savings from a qualified tuition program).

[AJsTax]

A loan in the student's name is the students. parents get no credit for that, same as only the child can deduct the interest and cannot if still a dependent.

[Jesse]

Bump

Not that I doubt what you say AJ, as that is the way I am leaning, I just can't find any specifics to confirm or deny.

The Pubs say "a loan", doesn't say taken out by student or parent. But it does specifically state an inheritance given to either the student or the individual making the withdrawal.

I'm still walking down the middle of the road? Any other opinions?

[David1980]

I know in Pub 501 when talking about the support test for a dependent, loans in the students name are support provided by the student.

[New York Enrolled Agent]

If the qualifying expenses are paid with a student loan that is in the child's name does the exception for the early withdrawal still apply to the parent, or is that considered paid by the child and not the taxpayer?

You might want to read Duronio TC Memo 2007-90. It appears that the expenses paid by a student loan in the student's name (and not guaranteed by the parents) would not be considered as paid by the parents. Thus the exception to 72(t) would not apply to the parent.

Perhaps, dtlee will see this post. He has spent considerable time researching all the educational benefits and would likely contribute to this thread.

[Jesse]

Thank you very much, that gives me something solid to show my clients.