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).