How to Use a Roth IRA for College Tuition

Roth IRAs allow you to take tax-free qualified withdrawals after the account has been open for five years and you are either 59 1/2 years old, permanently disabled or taking out up to $10,000 as a first-time homebuyer. Even if you take out earnings early, you can avoid the early withdrawal penalty if you spend the money on qualified higher education expenses, including college tuition for yourself, your spouse, your children or your grandchildren.

Step 1

Complete and submit a distribution request form to take a withdrawal from your Roth IRA. You must provide the account information, but you don't have to give a reason why or document the college expenses.

Step 2

Subtract the contributions in your Roth IRA from the amount of the withdrawal to find the taxable portion of the withdrawal, if you're taking an early withdrawal. If your contributions exceed the amount of the withdrawal, you won't owe any taxes or penalties. If your distribution exceeds the amount of the contributions, the excess comes from earnings, which are taxable and, when an exception doesn't apply, hit with a 10 percent early withdrawal penalty. For example, say your Roth IRA contains $11,000 of contributions. If you take out $18,000 to pay for your daughter's tuition, the first $11,000 comes out of contributions and the last $7,000 comes out of earnings.

Step 3

Report the withdrawal on your taxes. If you're taking a qualified distribution, report the entire amount on line 15a of Form 1040 or line 11a of Form 1040A. None of it is taxable. If you are taking a non-qualified withdrawal, report the entire distribution on line 15a and the earnings portion on line 15b. The earnings are included in your taxable income.

Step 4

Complete Form 5329 if you are taking a non-qualified distribution to exempt the portion of earnings spent on college tuition from the early withdrawal penalty. Enter the tuition paid on line 2 and "08" in the space next to it to tell the IRS the reason for the exception. As long as your tuition expenses equal or exceed the earnings withdrawn, you won't owe any early withdrawal penalties.

Items you will need

  • IRS Form 1040 or 1040A
  • IRS Form 5329

Photo Credits

  • Jupiterimages/Creatas/Getty Images

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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