A Roth IRA is one of the best ways to save for retirement, but it can also be used to save for college.

A Roth IRA is one of the best ways to invest for retirement, since the money inside it grows tax-free and in most cases, withdrawals for retirement come without any tax consequences. It can be an especially great way to save for retirement when you're young and your income is relatively low. If you're in a low tax bracket, getting a tax deduction (like for 401(k) or Traditional IRA contributions) won't benefit you nearly as much.

But while the primary use of a Roth IRA is for retirement, there are a couple of other ways that you can withdraw money from your Roth IRA without paying a penalty.

One of those is for qualified higher education expenses. That makes using a Roth IRA to save for college one option to consider.

What Is A Roth IRA?

A Roth IRA is an alternative to what is now called a "Traditional" IRA. Roth IRAs were established in 1997 and named for Senator William Roth from Delaware. In a traditional IRA, you can take a tax deduction for contributions in the year that you make them, but you pay taxes when you withdraw the money in retirement. 

With a Roth IRA, you flip that tax calculation — you won't get a tax deduction when you make the contributions, but your earnings grow tax-free. You also won't pay any taxes on money that you withdraw in retirement. This combination makes it an attractive way to save for retirement, since you can have potentially unlimited tax-free retirement savings.

Regulations For Withdrawing From A Roth IRA

As you might imagine, given that a Roth IRA is primarily a vehicle for saving for retirement, there are regulations for when and how you withdraw money from your Roth IRA account. Because you make contributions to a Roth IRA with after-tax money, there is not a penalty or tax consequence if you withdraw the contributions. You can always withdraw your contributions at any time. But, except in certain circumstances that we'll address below, you will pay taxes and/or a penalty if you withdraw any earnings from your Roth IRA before retirement.

Generally speaking, you can make a qualified withdrawal of earnings from your Roth IRA if you have had the account for at least five years and you are at least 59 ½ years old. There are also a few exceptions to this rule including if you die, are permanently disabled or are using the money for the purchase of your first home.

If you make a non-qualified earnings withdrawal from your Roth IRA account, you will be taxed on the amount of your earnings as ordinary income AND pay a 10% penalty. However, there are a few exceptions that don't require the 10% penalty. Per IRS Topic 557, here are a few of the major ones:

• Death of the IRA owner
• Becoming permanently disabled
• A qualified first-time home purchase
• Higher education expenses
• Health insurance premiums after being unemployed
• Un-reimbursed medical expenses over a certain percentage of your income
• An IRS levy
• A qualified reservist distribution
• In case of a qualified emergency or disaster
• Up to $5,000 for a qualified birth or adoption distribution

If you make a withdrawal of earnings from your Roth IRA account in one of these categories, you won't pay a 10% penalty (but you will still pay taxes on the amount of your earnings).

Since we're talking about using a Roth IRA to save for college, let's specifically look at the higher education expenses.

As an example, let's say that you have made $25,000 in contributions to your Roth IRA and the balance has now grown to $35,000. If you want to withdraw the entire amount to pay for qualified higher education expenses, then you will pay no tax or penalty on your $25,000 in contributions. Because higher education is an allowed reason to withdraw earnings before retirement, you will not pay a penalty but you will pay taxes on the $10,000 in earnings.

How Roth IRA Withdrawals Impact Your FAFSA

The FAFSA is the Free Application For Student Aid. It’s used to determine a student’s eligibility for student aid.

While a Roth IRA does provide great advantages when paying for education, there