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petitioners must pay an early withdrawal tax on that portion of
their IRA distribution that exceeded their qualified higher
education expenses; i.e., $14,284.
Petitioners conceded at trial that they knew they had to pay
regular income tax on the early withdrawal but felt that they
“would avoid the penalty associated with it for early withdrawal”
based on the exception for higher education expenses. The
essence of petitioners’ contention is that, in order to obtain
sufficient after-tax dollars to pay for their estimated education
expenses, as well as the regular income tax imposed on the IRA
distribution, they had to withdraw an amount in excess of their
estimated education expenses. Petitioners argue that this “catch
22”7 was not the intent of the early withdrawal tax because they
are being unfairly penalized for taking an early IRA distribution
for the purpose of paying for higher education expenses. As
such, petitioners contend that no part of the distribution should
be subject to the early withdrawal tax under section 72(t).
Petitioners, however, cite no authority to support their
proposition, and we are aware of none. The situation presented
by petitioners (i.e., that the entire distribution should be
exempt from the early withdrawal tax under the exception for
qualified higher education expenses because a portion of the
7 Petitioners describe the “catch 22” as: “In order to get
the amount you need, you have to take more than you need.”
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Last modified: May 25, 2011