401K vs IRA penalty for withdrawal for child's education - under 59 l/2.

[Carolina]

The Tax Book chart shows an exception to the IRA withdrawal penalty but imposes the penalty on the 401K withdrawal. Why?

[Jiggers]

that is the way that the tax code is written.

[Traveling EA]

Exception to the penalties

The same it true with the first time homebuyer exception. The solution is to transfer the money to an IRA first, then use it for education, or the first time home purchase.

[New York Enrolled Agent]

that is the way that the tax code is written.

What Jiggers said - IRC §72(t)(2)(D) (emphasis added)

(E) Distributions from individual retirement plans for higher education expenses-
Distributions to an individual from an individual retirement plan to the extent such distributions do not exceed the qualified higher education expenses (as defined in paragraph (7)) of the taxpayer for the taxable year. Distributions shall not be taken into account under the preceding sentence if such distributions are described in subparagraph (A), (C), or (D) or to the extent paragraph (1) does not apply to such distributions by reason of subparagraph (B).

[New York Enrolled Agent]

The same it true with the first time homebuyer exception. The solution is to transfer the money to an IRA first, then use it for education, or the first time home purchase.

Assuming the taxpayer is still working, how do you accomplish this? Typically, while working, a taxpayer may only take a hardship withdrawal from a 401K. §402(c)(4)(C) does not permit hardship withdrawals to be rolled over.

[Traveling EA]

Assuming the taxpayer is still working, how do you accomplish this? Typically, while working, a taxpayer may only take a hardship withdrawal from a 401K. §402(c)(4)(C) does not permit hardship withdrawals to be rolled over.

You cannot. I was assuming it may have been a 401K from a prior employer, since the OP asked about penalties from a 401K plan used for education. The only way to get money out of the 401K is to leave the job or get a loan, or if the plan allows hardship withdrawals (not all plans do) I am not sure education is a hardship withdrawal. I think that is defined by the plan document, if the plan document allows them.