PENALTY-FREE WITHDRAWALS FROM INDIVIDUAL RETIREMENT PLANS FOR HIGHER EDUCATION EXPENSES.

SEC. 203. PENALTY-FREE WITHDRAWALS FROM INDIVIDUAL RETIREMENT PLANS FOR HIGHER EDUCATION EXPENSES. (a) In General.—Paragraph (2) of section 72(t) (relating to exceptions to 10-percent additional tax on early distributions from qualified retirement plans) is amended by adding at the end the following new subparagraph: “(E) Distributions from individual retirement plans for higher education expenses.—Distributions to an individual from an individual retirement plan to the extent such distributions do not exceed the qualified higher education expenses (as defined in paragraph (7)) of the taxpayer for the taxable year. Distributions shall not be taken into account under the preceding sentence if such distributions are described in subparagraph (A), (C), or (D) or to the extent paragraph (1) does not apply to such distributions by reason of subparagraph (B).”. (b) Definition.—Section 72(t) is amended by adding at the end the following new paragraph: “(7) Qualified higher education expenses.—For purposes of paragraph (2)(E)— “(A) In general.—The term ‘qualified higher education expenses’ means qualified higher education expenses (as defined in section 529(e)(3)) for education furnished to— “(i) the taxpayer, “(ii) the taxpayer’s spouse, or “(iii) any child (as defined in section 151(c)(3)) or grandchild of the taxpayer or the taxpayer’s spouse, at an eligible educational institution (as defined in section 529(e)(5)). “(B) Coordination with other benefits.—The amount of qualified higher education expenses for any taxable year shall be reduced as provided in section 25A(g)(2).”. (c) Effective Date.—The amendments made by this section shall apply to distributions after December 31, 1997, with respect to expenses paid after such date (in taxable years ending after such date), for education furnished in academic periods beginning after such date.111 STAT. 810