Can an old college debt be tax deductible?

This year I had to pay my old university back for the classes I took because I transfered to a new university. I could not get my transcipts sent to the new school until I sent them payment in full. I was unable to get a loan to pay for this so I cashed in some savings bonds and withdrew some money from my 401k. Is there anyway to off-set the penalties and interest that I encured since this was a school debt? I do have additional expenses for my new school already listed. Thanks!

Can an old college debt be tax deductible?
In order to avoid the 10% penalty on the 401k withdrawal, the withdrawal has to be less than your qualified educational expenses. So it seems that you are exempt from the penalty. Attach Form 5329 to your return.





Tax on the savings bond interest may be excludible as well. Use Form 8815 to figure the exclusion and attach it to your return.





If there are additional educational expenses that were not paid with the 401k withdrawal or the savings bonds, you may be able to take a deduction or credit for those expenses.
Reply:If you took money out of 401(k) and informed the company as to why, you should be able to reduce your early w/d penalty. Also, the savings bonds you would only be taxed on the interest, not the whole value. Also, be sure to optimize between the Lifetime Learning credit and Tuition/Fee deduction. This year it may be wise to have accountant help you since each factor you mentioned has a wide variety of solutions that can benefit you depending on your situation.

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