Typically, families pay for college with cash they stashed in a savings account or invested in a 529 education savings plan. But, there’s another option you may not have considered: a Roth individual retirement account (Roth IRA). Although a Roth IRA is designed to help people save and invest for their retirement, it has some unique features that may make it useful for covering education expenses.
However, there are downsides to tapping into a Roth IRA for college costs. Before dipping into your retirement fund, it’s important to understand the rules of Roth IRA withdrawals, tax implications, and other long-term considerations.
What Is a Roth IRA?
Roth IRAs are popular personal finance tools; according to the Investment Company Institute, nearly one-quarter of American households have Roth IRAs.
A Roth IRA can be an excellent way to save for college if you don’t have access to an employer-sponsored retirement plan, such as a 401(k), or if you want to supplement your other retirement plans. You can save money by yourself and choose your own investments, and the account isn’t tied to employment.
With a Roth IRA, you pay taxes on the money you put in now, but, once you retire, you can withdraw money tax-free.
However, there’s a special benefit to Roth IRAs: you can withdraw your contributions (but not the earnings) at any time, without worrying about penalties or taxes. But, if you withdraw the earnings, you’ll pay a 10% penalty.
Eligibility
Not everyone is eligible for a Roth IRA; you can only open a Roth IRA if you meet the income restrictions. For 2025, your modified adjusted gross income (MAGI) must be under $150,000 if you’re single, and under $236,000 if you’re married and file a joint tax return.
Contributions
For 2025, you can contribute up to $7,000 per year to a Roth IRA ($8,000 if you’re 50 or older).
Using a Roth IRA for College Expenses
If you have a Roth IRA, there are a few different ways you can tap into your retirement fund to cover college expenses:
- Contributions: No matter your age, you can withdraw the money you contributed to a Roth IRA at any time, without penalty or taxes. For example, say you contributed $1,000, and thanks to investment growth, the account is now worth $1,200. You can withdraw the $1,000 you originally contributed without penalty for any purpose.
- Earnings before you reach 59 ½: If you’re under the age of 59 ½, you can withdraw your contributions and earnings — without paying the typical 10% — to pay for qualifying higher education expenses, such as tuition or course fees.
- Earnings after you reach 59 ½: Once you’re 59 ½, you can withdraw both the contributions and earnings at any time, for any purpose, without taxes or penalties
Pros and Cons of Tapping Into Your Roth IRA for College
Using a Roth IRA to pay for college has some benefits and drawbacks:
Pros
- Flexibility: Unlike 529 plans or Coverdell accounts, you don’t need to designate a specific beneficiary for a 529; you can take out the contributions for any purpose or any person.
- No interest: Unlike student loans, which charge interest, you can withdraw money from a Roth IRA without interest charges, taxes, or penalties.
- Tax-free growth: You can invest your contributions to potentially grow your money, tax-free.
Cons
- Low contribution limits: With a Roth IRA, the maximum you can contribute is just $7,000 per year — a lower limit than you’ll find with 529 plans.
- No tax deductions or incentives: Unlike other tools, there are tax deductions or state incentives to a Roth IRA.
- Losing market growth: When you take money out of a Roth IRA, you don’t just reduce your retirement fund but that amount; you also lose future growth the money would’ve earned if you kept it invested.
- Impact on financial aid: When you use a Roth IRA for college expenses, your withdrawals can impact your eligibility for other forms of financial aid.
How Do Roth IRAs Affect Financial Aid
The money you contribute and invest in a Roth IRA doesn’t affect your Free Application for Federal Student Aid (FAFSA) or Student Aid Index (SAI). However, any withdrawals from your Roth IRA will count as income, so it can affect what aid (and how much assistance) you can receive from the federal government, states, or colleges.
Other Ways to Help Your Children with College Expenses
If you weigh the pros and cons and decide against using a Roth IRA to pay for your child’s college expenses, there are other tools you can use instead:
529 Saving Plans
A 529 college savings plan is a more traditional way to save for college, and it can offer certain benefits that a Roth IRA can’t. For example, some states offer tax breaks on contributions, and you don’t have to worry about a low annual contribution limit. Also, your 529 plan funds grow tax-free and can be withdrawn tax-free for 529 plan qualified expenses. However, there’s only one beneficiary on this type of plan, and if your child doesn’t need all the funds, you’ll be taxed and possibly even penalized for withdrawing the money for other reasons.
If You Have Time, Start a College Fund
It’s never too late to start a college fund to save as much money as you can before tuition is due. This can be in the form of a 529 plan, a Coverdell Education Savings Plan or simply a savings or investment account. Whatever you don’t cover with your savings, you can make up the difference with federal student loans, private student loans, grants and scholarships.
Private Student Loans
If you want to avoid impacting your retirement savings, private student loans can be a great option to pay for college, especially if you’ve reached your federal student loan borrowing limit. With good credit or a cosigner who has good credit, you can potentially qualify for a low interest rate and a flexible student loan repayment plan.
Apply for Private Student Loans Today with ELFI
ELFI offers private student loans for undergraduates, parents and graduate school with competitive interest rates and flexible repayment options. Depending on your preference, you can begin paying your student loans while you or your child is still in school, or you can defer them until after graduation. If you’re thinking about using private student loans to help cover the cost of college, use ELFI’s student loan calculator to estimate your monthly payments and overall costs.
