I closed out a small Roth IRA to put money into educational fund for my child. Does this count as higher education when they asked you what the IRA distribution was used for?
No, sorry- A transfer or other such deposit from an IRA to a 529 plan is the same as simply taking the money out and spending it. There's no exception to either taxes or the penalty. The education exception requires current higher educational expenses. Though a 529 plan is geared towards higher education, the money isn't for higher education until its actually being used as such.
There needs to be an existence of both qualified education expenses and a qualified educational institution. Putting money into a 529 doesn't meet either.
Perhaps you qualify for a different exception?
Also, keep in mind that you are only penalized on the earnings.
Qualified higher education expenses. Qualified higher education expenses are tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student 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. In addition, if the individual is at least a half-time student, room and board are qualified higher education expenses.
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In some cases, the transfer of money can be a good move. After all, you can now invest in the 529 and possibly take out earnings tax-free before you are 59 1/2. But, you will pay the 10% on the earnings now, since you are currently considered to be taking a nonqualified withdrawal from the Roth.