How Can My IRA Be Used for College Tuition?

Aug 19, 2022 By Susan Kelly


It's possible to use early IRA withdrawals to pay for tuition. If you meet the exact requirements, you can utilize your retirement assets to cover various educational costs for you, your spouse, your kids, or your grandchildren without incurring IRS penalties. Here you’ll learn can my ira be used for college tuition?

Education: An Exception to the Rule

The Internal Revenue Service imposes an additional 10% penalty on taxable withdrawals made from IRAs, 401(k) plans, or other retirement savings vehicles before the age of 59.12, which is a significant exception to the general rule (IRS). One major exception to this is the field of education. In this approach, we encourage people to safeguard their assets, so they won't have to rely entirely on government assistance like Social Security as they age.

However, the IRS is aware of some exceptions to this rule. These exemptions aim to lessen the burden of covering some of life's highest and essential costs. One of the few significant exceptions to the regulation that calls for a 10% penalty is using IRA funds to pay for college. We also make an exemption for first-time homebuyers and people with significant medical bills not covered by insurance.

Penalty Exemption Requirements

You or a family member may be exempt from the penalty if you or they have eligible educational costs incurred in the same calendar year as the distribution. You could reduce the amount of money you need to pay back in loans by taking withdrawals from your savings account. While this happens, you or a family member still enroll in school. This is the case even though you cannot use cash from an IRA to pay off student loans after you have graduated from college.

To avoid paying an early withdrawal penalty, you must prove that the student is enrolled in a good higher education program. Included are all postsecondary schools that the United States Department of Education (USDOE) has judged to be qualified to participate in its student assistance program. In this discussion, "college" can refer to either a public university, a private nonprofit, or a nonprofit vocational school. Even while this applies to the vast majority of educational establishments, you should still investigate whether or not they are eligible to receive contributions to an IRA before you take any money out.

Roth IRA vs. Traditional IRA to Pay for College

Traditional and Roth individual retirement accounts (IRAs) can be utilized in various ways to fund higher education expenses; however, these two types of accounts cannot be combined. The contributions to a traditional Even though both types of IRA can be used to pay for school expenses without paying the typical early withdrawal penalty of 10%, individuals who do so from a conventional IRA will still be subject to income tax on the amount that is disbursed early. According to Ann Garcia, a Certified Financial Planner, this is one of the reasons why customers should use a Roth IRA rather than a standard IRA to pay for their higher education. She also blogs at The College Financial Lady. Because the money in a Roth IRA has already been subject to taxes, withdrawals from the account are not subject to a penalty.

She does note, however, that the profits portion of a Roth IRA withdrawal is subject to taxation if the account holder has held the account for fewer than five years and is withdrawing the money for higher education expenses before the earnings portion of the account has compounded, and is using the money before the earnings portion of the account has compounded. Suppose a parent contributes $30,000 to a Roth IRA, which has grown to $45,000 with earnings. In that case, the parent can make a tax-free withdrawal of up to $30,000 (the amount contributed) to fund higher education expenses for their child within the first five years of the account's existence.

Passing Expenses

Other costs for education include school fees, books, supplies, equipment, and, if necessary, disability services. If the student continues to be enrolled full-time, the cost of room and board will be covered. All current-year expenses paid through salaries, loans, savings, gifts, or inheritance are eligible for reimbursement from IRA funds. You cannot use non-taxable scholarships and grants to cover these expenses. Costs covered by a veterans' organization or an employee's benefits package are likewise not covered. You can only withdraw funds from your IRA to cover your permitted medical expenses. Any withdrawal of taxable funds above this cap will be subject to income tax and a 10% penalty.


Retirement withdrawals from a Roth IRA are tax-free because they were made using after-tax money. Contributions are not taxed. Hence the 10% penalty does not apply. You can take a withdrawal from your Roth IRA contributions whenever you want without incurring any taxes or penalties.

More Articles
Copyright 2019 - 2023