Expert: Allen - 2/19/2008

Question
This year I took out money from my 401k to pay for College.
Do I have to claim this as income and pay a 10% penalty.
I have read several places that it may not be subject to the 10% penalty. Can you help answer this question?
Thanks, brad

Answer
There is a good reason for the confusion. Distributions from an IRA to pay higher education expenses are not subject to the 10% penalty tax. Unfortunately, distributions from a 401k are subject to this tax.

In either case the amount received is subject to federal and state income tax. The distribution will be reported to the IRS and your state (if it has an income tax) next January