If you withdraw earnings from a Roth IRA before you’re 59 1/2 (or even if you are 59 1/2 or older but you haven’t held the account for five years including conversions), you will pay taxes at your ordinary income tax rate and you will pay a 10% early withdrawal penalty.
However, you can take distributions from your IRAs for qualified higher education expenses without having to pay the 10% additional tax. If the withdrawal is used for qualified education expenses, there is an exception to the early withdrawal penalty.
If you use a Roth IRA withdrawal for qualified education expenses, you will avoid the 10% penalty, but you will still pay income tax on the earnings portion of the distribution.
You can take a distribution from your IRA before you reach age 59 1/2 and not have to pay the 10% additional tax if, for the year of the distribution, you pay qualified education expenses for:
Your or your spouse’s child, foster child, or adopted child
Your or your spouse’s grandchild.
For purposes of the 10% additional tax, these expenses are tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. They also include expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance.
If you are planning to save for educational expenses, a 529 savings plan is better suited for the purpose. 529s allow you to save more through bigger contributions ($15,000 per year), and you can also fund $75,000 upfront or $150,000 for a married couple. There are no income limitations for contributions, and you may qualify for a deduction for state taxes. Another benefit of the 529 is that withdrawals used for qualified educational expenses aren’t subject to tax, including on the earnings.
Source: IRS Publication 970