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during 1998.
Petitioner argues that it would be inequitable for the 10-
percent additional tax to apply to any part of the distribution
from her retirement plan in 1998 because it is unrealistic to
expect a student to complete higher education in less than one
year.
Petitioner’s argument is misguided. There is no requirement
in either section 72(t) or section 529(e)(3) that a taxpayer must
complete a higher education within one year to avoid the section
72(t)(1) additional tax on early distributions from a qualified
retirement plan. A taxpayer-student can avoid the section
72(t)(1) tax simply by withdrawing during the year an amount less
than or equal to the amount that the taxpayer pays for higher
education expenses for that year.
In the present case, petitioner explained that she withdrew
$41,993 from her qualified retirement account because she
required funds to buy a car and to pay off bills in addition to
paying amounts to the University of Phoenix during 1998. On this
record it is clear that petitioner did not withdraw the $41,993
from her retirement account for education expenses but used the
bulk of the amounts withdrawn for personal living expenses.
Petitioner further argues that the distribution should not
be subject to the 10-percent additional tax because she is
entitled to rely on the advice of respondent’s representatives.
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Last modified: May 25, 2011