Does the tax code penalize children who use, say, $7,000 from their savings for college?

Yes, more than likely!

Does the tax code penalize children who withdraw $7,000 in funds from a traditional IRA and use that money for college?

Yes, more than likely, but not as you would expect.

Does the tax code penalize children who withdraw $7,000 in funds from a Roth IRA and use that money for college?

No, not if the withdrawal is from contributions only.

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