There are two positive ways you can withdraw funds from an IRA without penalty, the first is for the purchase of your first home and the second one, which we will discuss right now, is for qualified education related expenses. The rules regarding penalty-free withdrawals for education are actually quite simple:
- The student has to be eligible. An eligible student can be you, your spouse, your child, foster child, or a descendant of them.
- Ensure that the eligible student attends an eligible institution, approved by the IRS. Any college, university, vocational school or post-secondary facility that meets federal student aid program requirements will be eligible. Whether the program is public, private or a nonprofit is irrelevant as long as its an accredited institution.
- Ensure that the funds are used to pay for tuition, fees, books, supplies, or any required equipment (such as lab equipement). If the student is more than half-time, room and board are also legitimate.
For more information, read Chapter 9 of IRS Publication 970: Tax Benefits for Education.