Can I Take Money Out of My Roth IRA for Graduate Education?
You have access to the money in your Roth IRA at any time. However, distributions not made under Roth IRA rules can be subject to a 10 percent early distribution penalty. As of 2010, if you adhere to certain IRS rules, you may use the money in your Roth IRA for graduate education while avoiding the penalty.
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Conditions
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The IRS states that for a distribution to be qualified, or not subject to penalties, you must take the money out after the five-year period after the first taxable year in which you contributed to the Roth IRA. You must also make the distribution under at least one of the following conditions: you have turned at least 59 1/2, you are disabled, your estate or beneficiaries are receiving the money after your death or you are using the money for a qualified first home purchase.
Exceptions
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You may avoid the early distribution penalty of 10 percent if the distribution amount does not exceed the amount you spent or will spend on qualified higher education expenses for that tax year. Qualified higher education includes any program that meets the federal student aid program guidelines. It must be accredited and can be at a public, private or non-profit institution. Masters and doctoral programs both qualify for this exception.
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Approved Expenses
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Tuition, fees, books, supplies and equipment needed for your graduate school attendance are qualified higher education expenses. Special-needs students may also include expenses to cover their needs connected with enrollment or school attendance. If you attend at least half-time, you may even count room and board as higher education expenses.
Warning
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You may not count as higher-education expenses any expenses paid from a Coverdell education account, tax-free parts of scholarships and fellowships, Pell grants, employer-provided education assistance, veterans' education assistance or tax-free money received for educational purposes that does not qualify as a gift or inheritance.
Potential
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You may also make non-penalized early distributions to pay for the higher education expenses of other members of your immediate family. Eligible family members are your spouse and children or grandchildren of you, your spouse or both of you.
Expert Insight
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While you may make distributions from your Roth IRA to cover graduate educational expenses, an article in SmartMoney.com, a website of the Wall Street Journal Digital Network, recommends making a significant effort to cover those expenses through other means first. Money left in your Roth IRA account rather than put toward education has an opportunity to accrue interest over time and have a greater financial benefit to you in retirement than it would presently as graduate education funds.
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References
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