Your college should have calculated a room and board allowance that you can use. Alternatively, you can use the fair market rental value as a room and board expense—what it would cost to rent the same or similar type of housing. Because the mortgage payment builds equity, you can't use the mortgage directly as an educational expense, because it is both providing current housing and building equity toward the future. But you can use FMV rental.
Let's also be clear on what is taxed and what is not taxed with a Roth IRA. Withdrawals are always taken in a specific order; contributions first, rollover conversions second, and earnings last.
- You can withdraw your original contributions at any time and for any reason without tax or penalty.
- If you withdraw conversions less than 5 years after the conversion was made, you will owe a 10% early withdrawal penalty.
- If you withdraw earnings before age 59-1/2, you will pay regular income tax plus the 10% early withdrawal penalty.
The education exception applies to the 10% early withdrawal penalty on conversions and earnings, but does not exempt you from regular income tax on the earnings. And much of your withdrawal will probably be contributions (at least, at first) which are always tax-free.
