You may withdraw money without penalty from your traditional IRA or Roth IRA to pay for qualified higher education expenses for yourself, your spouse, your children or your grandchildren.
There is no dollar limit, but the money must be used for qualified higher education purchases. These include: tuition, fees, books, supplies, and equipment required for the student's enrollment or attendance at an eligible educational institution. For students who are enrolled at least half-time, it also includes room and board for students living in university housing, or up to $2,500 for students living off-campus but not at home.
Traditional IRAs: You will not owe the 10% penalty, but you will owe income tax on earnings and any pre-tax contributions you withdraw.
Roth IRAs: If this is a nonqualified distribution, any earnings withdrawn would be taxable.
Some people save for a child's education both in a Roth IRA and an Education IRA. The Roth IRA has higher annual contribution limits, allowing a bigger balance to build up. Since withdrawals of the principal can be made at any time without penalty for higher education purposes, this is one option to consider if you think $500 a year in an Education IRA won't be enough to fund Junior's education.
The education and homebuyer exceptions do not apply to employer-sponsored retirement plans such as 401(k) plans.