Financial Q&A: Readers' money questions answered

How to tap an IRA without penalty before turning 59-1/2.

Q: My husband and I each have an IRA account worth just under $3,000. We are more than five years away from receiving Social Security and have no pension. If we need the money, what is the least expensive way of getting an IRA distribution?

C.B.B., via e-mail

A: It sounds to William Creekmur, senior financial adviser at WealthTrust-Arizona, in Scottsdale, as if you've not yet reached age 59-1/2, when you can normally start to tap retirement accounts free of penalties. But if you really need that IRA money now, Mr. Creekmur says that the IRS does offer a solution. It is IRS rule 72(t). Using this eliminates the 10 percent early withdrawal penalty normally due for withdrawals prior to age 59-1/2.

Rule 72(t), when allowed, creates an income stream, a substantially equal distribution, from an IRA that must be continued until the applicant's age of 59-1/2 has been reached or for a minimum of five years, whichever comes last. The dollar amount of the distribution is determined by an IRS formula. After the 72(t) has stopped, then of course any amount can be taken out of the IRA. For clarification, it is important to remember that all IRA distributions are fully taxable as ordinary income, but if you're less than 59-1/2, and you've taken advantage of rule 72(t), at least you get to skip the 10 percent early-withdrawal penalty.

Q: I'm in graduate school pursuing a master's degree in creative nonfiction writing. It's to help me finish a book. Is it tax deductible? I'm a nonfiction writer in my day job. Also, is there some threshold amount to meet? I have plenty of business expenses, but they never meet the threshold for deduction, so I can't use them. The cost of school would put me over the top.

F.K., Washington, D.C.

A: Education expenses associated with job skills are deductible to the extent that they exceed 2 percent of your adjusted gross income and are included as a miscellaneous itemized deduction. But there is a caveat, says W. Thomas Curtis, a certified public accountant in Gaithersburg, Md.: You cannot benefit financially from pursuing a degree unless that degree is directly related to job advancement, such as a master's degree in education for a school teacher (which many school systems now require before a teacher can be advanced).

You may be able to "cherry pick" some of the costs of some of the courses if they directly relate to your book, but Mr. Curtis says they will not be currently deductible. Instead, he advises keeping track of all of your expenses associated with writing the book, as they will be deductible against the royalties received on a pro rata basis once it is published.

As an example, suppose you publish 3,000 copies. Your costs for writing the book (including a couple of your courses) are $5,500. The amount you could write off as a cost of producing each book sold is $1.83. So if you sell 1,000 copies the first year, your costs associated with the royalties received is $1,830.

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