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 In contrast, the earnings on those contributions cannot be withdrawn prior to age 59 1/2 or a five-year seasoning period (whichever is later) without paying income tax and a penalty.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

  1. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  2. Who can make catch-up contributions?

    Most common retirement plans such as 401(k) and 403(b) plans, as well as individual retirement accounts (IRAs) allow you ... Read Full Answer >>
  3. Can you have both a 401(k) and an IRA?

    Investors can have both a 401(k) and an individual retirement account (IRA) at the same time, and it is quite common to have ... Read Full Answer >>
  4. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  5. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>
  6. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
Related Articles
  1. Retirement

    Two Heads Are Better Than One With Your Finances

    We discuss the advantages of seeking professional help when it comes to managing our retirement account.
  2. Retirement

    5 Secrets You Didn’t Know About Traditional IRAs

    A traditional IRA gives you complete control over your contributions, and offers a nice complement to an employer-provided savings plan.
  3. Retirement

    Using Your IRA to Invest in Property

    Explain how to use an IRA account to buy investment property.
  4. Retirement

    How a 401(k) Works After Retirement

    Find out how your 401(k) works after you retire, including when you are required to begin taking distributions and the tax impact of your withdrawals.
  5. Retirement

    Are Fees Depleting Your Retirement Savings?  

    Each retirement account will have a fee associated with it. The key is to lower these fees as much as possible to maximize your return.
  6. Retirement

    Retirement Tips for Doctors

    Learn five tips that can help physicians get back on schedule in terms of making financial preparations they need to retire.
  7. Investing Basics

    Do You Need More Than One Financial Advisor?

    Using more than one financial advisor for money management has its pros and cons.
  8. Savings

    Should You Look at 529 Plans Outside Your State?

    529 savings plans are not restricted by geography. So if your in-state offering has high fees or poor investment choices, look elsewhere.
  9. Insurance

    What's The Difference Between Medicare And Medicaid?

    One program is for the poor; the other is for the elderly. Learn which is which.
  10. Insurance

    Cashing in Your Life Insurance Policy

    Tough times call for desperate measures, but is raiding your life insurance policy even worth considering?
  1. Student Loan Forgiveness

    Under certain circumstances, federally backed student loans – ...
  2. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students ...
  3. Stafford Loan

    A type of federal, fixed-rate student loan that was available ...
  4. Good Student Discount

    An auto insurance policy discount available to young drivers ...
  5. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
  6. Whartonite

    A graduate of the Wharton School of Business at the University ...

You May Also Like

Trading Center