Can IRA Money Cover Tuition, Meal Plans and Housing?

The IRS won't let you use IRA money to pay for education expenses that are spent at unqualified schools. First, you can only take the write off for postsecondary education -- so using IRA money to pay tuition for a boarding school for high school isn't allowed. Second, the school has to be eligible for federal student aid administered through the Department of Education. While most colleges, universities and vocational schools meet this standard, it's best to check with the school before making a withdrawal.

IRA withdrawals are penalty-free for direct academic expenses like tuition and fees and for necessary supplies and equipment like textbooks or a required computer purchase. To be able to also write off room and board expenses like housing expenses, meal plans or dining points, the student must be enrolled at least half-time. Part-time students are only eligible to use IRA money for academic expenses.

If you're a part-time student, you might not be able to use IRA funds to pay your room and board, but you can use them to pay all of your academic expenses. That way, you can use student loans, grants or your own money to pay for your room or board. You're just moving money around and paying different things with different accounts, but to the IRS, you're following the rules. If you don't have the money to do this and need to take all of your expenses out of your IRA, though, you could end up having to pay the penalty unless you can reclassify yourself as being a half-time student rather than a part-time student. To qualify as a half-time student, you must be enrolled for a credit load that is equal to at least one-half of what your school considers to be full-time. Anything less is part-time to the IRS.

If your intent is to use IRA funds to pay for your education, a Coverdell Education Savings Account, sometimes formerly called an Education IRA, may be a better option. With a Coverdell account, the money that you put in is taxed, but you can withdraw it and all of its earnings tax-free for educational expenses. You can also use it for primary and secondary education expenses in addition to college costs. To avoid a penalty, though, you need to either use up your Coverdell account's balance before you turn 30 or transfer it to another family member.