5 Tips on Using an IRA to Pay for Education

For many families, higher education feels like both a milestone and a minefield, a proud investment shadowed by ever-rising costs. As tuition bills stretch into six-figure territory, even disciplined savers start looking beyond 529 plans and education loans for ways to bridge the gap. That’s often when another pool of money comes into view: the retirement account.

On paper, using an IRA to pay for college seems like an elegant solution. After all, it’s your money, and the IRS allows certain penalty-free withdrawals for qualified education expenses. But in practice, it’s a far more nuanced decision. Every dollar you take out for your child’s tuition is one less dollar compounding toward your future income. And yet, for parents who have balanced careers, mortgages, and years of saving, that trade-off can sometimes feel justified.

The real challenge isn’t whether you can use your IRA for education, but knowing when and how to do it wisely. The key lies in understanding the rules, anticipating the ripple effects, and ensuring that helping your child today doesn’t quietly undercut your financial stability tomorrow.

What follows are five grounded, actionable insights to help you navigate this decision using strategy and foresight. These are the finer points that separate a quick withdrawal from a well-considered financial move.

Below are 5 tips on how to use an IRA to pay for higher education:

Tip #1: Understand what you can do when using an IRA to pay for college

When you are thinking of how to use an IRA to pay for college, the first step is to get clarity on what the rules allow and what they don’t.

• With a traditional IRA (or other IRAs), you can withdraw funds to pay for qualified higher-education expenses for yourself, your spouse, your child, or grandchild without incurring the 10% early-withdrawal penalty, even if you’re under age 59½.
• You may still owe ordinary income tax on the amount you withdraw (for a traditional IRA). The penalty is waived, but the tax is not.
• If you’re asking, “Can you withdraw money from an IRA to pay for a child’s college?”, the answer is yes, if the expenses qualify. The rules cover children, grandchildren, and even your spouse’s children.
• Only “qualified higher education expenses” count, such as tuition, required fees, books, supplies, equipment, and room and board, if the student is enrolled at least half-time in an eligible institution.

Note: Student loans or interest on student loans are not included under the higher-education exception in many cases. If the plan is simply to use the IRA to pay off loan debt, that may not completely avoid penalties.

Thus, an IRA can be used for education payments, but you need to ensure the distribution is tied to eligible costs and documented properly.

Tip #2: Consider how this affects your retirement roadmap

It’s tempting when you’re facing big education costs to think: “Well, I’ll just dip into the IRA.” But you’re trading one future cost (retirement) for another (education). It’s like cutting off a branch while the tree is still growing; you might get the fruit now (help with tuition), but you hinder the tree’s long-term growth (retirement income).

When deploying your IRA for education, factor in the long-term effects.

• If you withdraw from your IRA now, you lose not only that principal but also the future growth on that money. That’s especially relevant if you’re “mid-career” and still counting on compound returns for your retirement.
• The “education” exception for an IRA does not mean you’re exempt from taxes (for a traditional IRA) or from jeopardizing retirement goals.
• Ask yourself: “If I pull X dollars out now, what does my retirement income look like? Can I replace that in another account? Do I have a backup plan?” These are critical questions before using an IRA to pay for college.

If you’re using an IRA for education, make sure you’re not sacrificing the nest egg you’ll need when you’re retired.

Tip #3: Match the timing and qualify the expenses

When you’re focused on how to use an IRA to pay for college, timing matters. The expenses and the withdrawal must sync properly.

• The qualified education expenses must be paid in the same calendar year as the IRA distribution to qualify for the penalty exception.
• The expenses must be for an eligible educational institution (U.S. or foreign) that participates in federal student aid programs.
• If the student is enrolled at least half-time, room and board count; if enrolled less than half-time, it often won’t qualify.
• While you’re avoiding the 10% early-withdrawal penalty, you still must include the distribution in the year’s taxable income (traditional IRA) unless it’s a Roth and you meet special conditions. So plan for the tax hit and its timing.
• A withdrawal from an IRA will count as income on your tax return, which may impact aid eligibility for the next year.

In short, aligning the calendar-year payment with the IRA withdrawal and documenting everything are critical. If you’re sloppy in timing or failing to match costs, what looked like an innovative use of an IRA for education can very easily go off track.

Tip #4: Know the pros and cons of using a Roth IRA for education

When you’re using an IRA to pay for education, the kind of IRA matters. A discussion of a Roth IRA is essential because the rules differ.

Pros:

• With a Roth IRA, you can withdraw your contributions at any time tax- and penalty-free (because you already paid taxes on them).
• If you use funds for qualified education expenses, you avoid the 10% early-withdrawal penalty even on earnings, but you still owe tax on the earnings portion unless you meet the age and five-year rules.
• The flexibility of a Roth gives you two options: treat it as retirement or education savings, or a hybrid approach. Some families intentionally fund a Roth and use it for education when needed, rather than loading a 529 plan exclusively.

Cons:

• Using a Roth IRA for education essentially trades off future tax-free retirement growth (since earnings can be tax-free if left undisturbed) for education funding now. The “flight attendant’s rule” applies: “Put your own mask on first.” It means you should secure your retirement before financing someone else’s schooling.
• If you withdraw earnings before age 59½ and before the account has been open for a period of 5 years, you may incur income tax on earnings (though the 10% penalty is avoided for qualified education expenses).
• As with a traditional IRA, the distribution may affect the student’s or your household’s financial aid eligibility because the withdrawal can be treated as taxable income the following year.

Tip #5: Incorporate this strategy as part of an overall plan (and seek expert advice)

If you’re evaluating an IRA to pay for college, don’t treat it as an isolated move. Integrate it into your broader financial strategy.

• Ask: How does this fit with your retirement savings target? How does it affect your child’s college funding strategy vis-a-vis 529 plan, scholarships, and student loans?
• Consider the miles-ahead question: Will tapping the IRA now force you to save more later, perhaps hampering your lifestyle or delaying retirement?
• Review alternatives: 529 plans, savings accounts, or other tax-advantaged education vehicles make more sense depending on your situation.
• Understand the documentation and tax-reporting side: You’ll need to report the early distribution on your tax return, use Form 5329 to claim the exception (code “08” for the higher‐education exception) if applicable.

Because the rules are precise and the consequences are big (both tax and retirement implications), using a financial advisor makes sense. They can help you model the “what ifs” – your child doesn’t go to college, costs go up, you retire earlier, and assess whether using your IRA is the least-painful option.

When you’re in your late 40s or 50s, approaching retirement, these decisions matter because you have less time to recover from mistakes.

To conclude: Balance education goals with retirement security

In the tug-of-war between education costs and retirement security, leveraging an IRA for college can make sense, but only when done with precision and intention. Here are three further takeaways to embed in your thinking as you move forward:

• Measure the opportunity cost clearly. Every dollar withdrawn is both a tax cost today and a growth cost tomorrow. Ask not only “can I” but “should I.”
• Stay mindful of indirect effects. Using an IRA to pay for college may avoid the 10% penalty, but it doesn’t avoid taxes (for traditional IRAs) or the impact on future aid eligibility. These ripple effects require planning.
• Ensure you’re not compromising the primary goal, retirement. If you use the IRA for college, make sure the plan still supports your retirement timeline. If you end up overly dependent on your child’s earnings or unplanned loans later, you may bear the cost of this choice.

If you’re seriously considering using an IRA to pay for college, or asking how to use an IRA to pay for college in your specific case, take into account the following factors – your age, retirement savings, income, tax bracket, and the student’s educational timeline. Once you’ve assessed your financial situation, consult with a qualified financial advisor. They can help you build a path that keeps both your retirement and your child’s education on solid footing.

Explore our financial advisor directory to find vetted professionals who can plan your retirement roadmap while considering future education costs as well.