A:

This is a surprisingly complicated question, as it touches on the differences between traditional and Roth IRAs, as well as what counts as a "qualified education expense."

Because Roth IRA contributions are made with after-tax earnings, a person can withdraw his or her direct contributions whenever he or she likes, in whatever amounts, and for whatever purpose. In contrast, the earnings on those contributions cannot be withdrawn prior to age 59 1/2 or a five-year seasoning period (whichever is later) without paying income tax and a penalty.

IRA withdrawals that are used for qualified education expenses are exempt from the penalty. Qualified expenses include current-year tuition, fees, books, room and board, and supplies. Repaying student loans is not a qualified education expense.

For purposes of this question, then, your daughter can use 100% of her past Roth IRA contributions for any purpose (including loans). She can also withdraw the earnings on those Roth IRA contributions penalty-free, but only to pay for her current tuition fees, books and so on.

SEE: 9 Penalty-Free IRA Withdrawals

RELATED FAQS
  1. What is the penalty for withdrawing money from my Roth IRA?

    Learn what penalties are imposed when you withdraw money from your Roth IRA and under what conditions these penalties do ... Read Answer >>
  2. What is the Roth IRA 5 year rule?

    Learn more about the Roth IRA five-year rule and the requirements that allow for tax-free withdrawals before five years have ... Read Answer >>
  3. What are the advantages of a Roth IRA?

    Contribute to your Roth IRA and gain the advantage of it free of taxes and penalties. Make approved early withdrawals to ... Read Answer >>
  4. What are some examples of the most common assets on a Roth IRA?

    Investing in a Roth IRA can be achieved by using a variety of assets. Cash, real estate, stocks, bonds and other investments ... Read Answer >>
  5. How can you borrow from a Roth IRA?

    Learn how to borrow money from your Roth IRA by rolling it over into another IRA account or taking an early withdraw to get ... Read Answer >>
  6. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    Find out how to calculate the tax penalty on early IRA distributions, including why distributions from Roth accounts can ... Read Answer >>
Related Articles
  1. Retirement

    How a Roth IRA Works After Retirement

    What retirees need to know about taxes, distributions and passing on your unspent savings to the next generation.
  2. Retirement

    Roth IRA Contribution Rules: The Basics

    What you need to know about Roth IRA contributions – from eligibility to dollar limits, deadlines to tax breaks.
  3. Retirement

    Taking a Roth IRA Early Withdrawal for College Tuition

    Weigh this Roth IRA strategy against using a 529 plan to save for college – it may be smarter.
  4. Financial Advisors

    Why Some Advisors are Shy to Convert Roth IRAs

    Potential upcoming changes from the Obama Administration could hit rollovers from traditional to Roth IRAs, and that has advisors reluctant to convert.
  5. Options & Futures

    Roth IRAs: Distributions

    The tax treatment of a Roth IRA distributions depends on whether the distribution is qualified. Qualified distributions from Roth IRAs are tax and penalty free, but nonqualified distributions ...
  6. Options & Futures

    Roth IRAs: Conclusion

    Like the Traditional IRA, Roth IRAs are flexible, and they are a popular way for individuals to save for their retirement. Roth IRAs differ, however, because assets can grow on a tax-free basis. ...
  7. Options & Futures

    Roth IRAs: Contributions

    Funding an IRA A Roth IRA can be funded from several sources: Regular contributions Spousal IRA contributions Transfers Rollover contributions Conversions Recharacterizations Roth IRA Regular ...
  8. Retirement

    Roth IRA Contribution Limits in 2016

    Discover the benefits of Roth IRA accounts and how much you can contribute for your retirement. Learn which IRA plan is best for you.
  9. Options & Futures

    Roth IRAs: Introduction

    The Roth IRA is a retirement saving account to which individuals can make contributions with after-tax dollars. If certain requirements are met, distributions from the Roth IRA will be tax-free. ...
  10. Retirement

    Roth vs. Traditional IRA: Which Is Right For You?

    To answer this question, you need to consider several of the factors we outline here.
RELATED TERMS
  1. Roth IRA

    An individual retirement plan that bears many similarities to ...
  2. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  3. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  4. Recharacterization

    The treatment of a contribution as being made to another type ...
  5. Roth 401(k)

    An employer-sponsored investment savings account that is funded ...
  6. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
Trading Center