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403(b) Withdrawals to Pay for Higher Education

Q: My understanding is that the 10% pre-59½ penalty tax is waived for withdrawals from the 403(b) account for higher education expenses for my client's daughter, but I need to be sure I am correct.

A: This is an issue which is commonly misunderstood, because withdrawals for higher education expenses DO waive the 10% penalty tax when made from IRAs. However, when the withdrawal is made from employer-sponsored plans for this purpose, the penalty tax IS NOT waived. This is covered in Internal Revenue Code Section 72(t).

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