Hi,

I'm an Indian Citizen working as a consultant. I have a traditional IRA account for 2007 contribution. I am also planning for 2008 contribution.

I got admission in universities for MBA and would like to take out entire money from IRA to fund my MBA.

I do understand that I don't have to pay penalty if I take money out of IRA (as mentioned on IRS website) but I do have to pay normal taxes on it.

What are the other restrictions I have in doing so ?

Thanks and regards,
Gaurav

As long as the amount you withdraw is less than your qualified higher education expenses, you won't have to pay the 10% early withdrawal penalty. But you will have to pay income tax on the portion of the withdrawal due to earnings and pre-tax contributions you made. Your IRA custodian will send you a form 1099-R to report the taxable amount of the distribution ro your income taxes next year, and then you file form 5329 to document that you qualify for an exception to the 10% penalty.

>>As long as the amount you withdraw is less than your qualified higher education >>expenses, you won't have to pay the 10% early withdrawal penalty.

Some more clarification needed.

Lets say, I need $30000 to fund my MBA and I have $20000 in IRA account. So, I can pull out entire money from my IRA account for my MBA. Is that right ?

If I do so, do I need to close that IRA account as it won't be left with any money ?

Thanks and regards,
Gaurav

Yes. Just be sure that you pay at least $20K in hihger education expenses in the same calendar year you withdraw the $20K from your IRA, and you should be fine.

You can close the IRA account after that if you wish.

If you withdraw from IRA, and the distribution is not more than your qualified higher education expenses (it includes tuition and fees, books, supplies and equipment), the withdrawal is not subject to 10% early withdrawal penalty. However, it will be treated as your ordinary income. Read Your U.S. Tax Return: Traditional IRA and Roth IRA