Kid’s Roth IRA distributions for college

Does the 5 year holding period apply to a Kid’s Roth IRA when the distributions are made for qualified college costs? As I understand it, there is no limit on how much of the kid’s Roth IRA can be used for college. However, if the Roth is established less than 5 years before distribution – does that mean only the contributions can be distributed or can gains be used ignoring the 5 year hold, since college distributions are considered an “exception”. Can’t find this anywhere on the IRS site.



Higher education expenses do not affect whether a Roth distribution is taxable or not. Such expenses only allow amounts that ARE taxable to escape the 10% penalty by filing a Form 5329 and claiming the higher education exception code. Since the Roth IRA is not yet qualified, all distributions follow the Roth ordering rules with regular contributions distributed first free of tax or penalty. There are no conversions in a child’s Roth, so earnings would come out after all regular contributions. The earnings would still be taxable, but the higher education costs would waive the penalty. Therefore, the 5 year holding period is immaterial in this situation.



Assets of Roth IRAs owned by the student are not counted for the FAFSA, but distributions to the student will be consider untaxed income subject up to a 50% assessment towards the FAFSA EFC. If the parents/student are on the EFC bubble, like thirdparty owned 529 plans. The distributions should be saved until after January 1st, two and one half years prior to the end of school.



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