You can use your IRA to pay for college tuition even before you reach retirement age. In fact, your retirement savings can be used to pay for a wide range of education expenses for you, your spouse, your children or your grandchildren.

Education: An Exception to the Rule

Generally, the IRS charges an additional 10% penalty on taxable withdrawals from IRAs, 401(k) plans or other retirement savings vehicles made prior to age 59.5. This encourages people to protect their savings so they do not need to rely on state benefits, such as Social Security, in their old age. In addition, those who contribute to a traditional or Roth IRA cannot withdraw funds within the five years after the year of the first contribution, regardless of age.

However, the IRS does offer a number of exceptions to this rule designed to assist people with some of the big, important expenses in life. In addition to the provisions for first-time home buyers and those with heavy medical bills not covered by insurance, using IRA funds to pay for college tuition is one of the most useful exceptions to the 10% penalty rule.

Requirements

To be eligible for the penalty exemption, you or your family must have qualifying education expenses within the year you take the distribution. While you cannot take IRA funds to pay off student loans after graduation, you can withdraw your savings to offset the impact of loan payments while you or your family member is in school.

To avoid paying an early withdrawal penalty, you must show the student is attending an eligible institution of higher learning. This includes any university, college, vocational school or other accredited public, private or nonprofit post-secondary school that is eligible for the student aid programs offered through the U.S. Department of Education. Though this includes most institutions, verify your school's eligibility before withdrawing IRA funds.

Qualifying Expenses

In addition to tuition charges, qualifying educational expenses include administrative fees charged by the school; the cost of books, supplies and equipment; and expenses for special needs services, if required. If the student attends school more than half-time, the cost of room and board is also covered.

Any qualifying educational expense paid for in the current year using wages from employment, loans, savings, gifts or inheritance can be offset with IRA funds. However, any expenses funded by tax-exempt scholarships or grants do not qualify. Expenses paid for with employer or veteran association education assistance are also excluded.

The amount of your IRA withdrawal cannot exceed the amount of your qualifying expenses. Any withdrawal of taxable funds over this amount is subject to the 10% penalty, in addition to income tax.

If You Have a Roth Account

Contributions to Roth IRAs are always made with after-tax dollars. Since withdrawals of contributions are not taxable, the 10% penalty does not apply. You can withdraw the full amount of your contributions to a Roth account tax-free and penalty-free at any age, for any purpose. However, if you are younger than 59.5 or had your account for less than five years, any earnings you withdraw are taxable at your current income tax rate, even if your withdrawal is penalty-free.