IRAs are great for Retirement accounts, but that’s that all!
There are many little-known uses for an IRA to shelter Money from taxes, while accomplishing non-retirement-related goals.
Normally when you Pull money out before retirement, you pay a 10% penalty, but here are some ways to avoid that extra fee…
1. Paying for School
You can use an IRA as an education investment account to pay for college.
This not only includes your own college, but also your spouse and any of your children.
The downside is that IRA distributions are considered income on financial aid applications, so this may affect the amount of financial aid you receive.
Depending on your situation, an IRA may work, but look at a 529, or other education investment options first.
2. First-Home Down Payment
If you qualify as a first-time homebuyer, you’re eligible to take up to $10,000 out of an IRA for a down payment on a house without paying the 10% penalty.
A first-time home buyer is defined as anyone who has not owned a home in the past two years
This applies to buying, building, and re-building a home.
3. Medical Expenses
You can use your IRA to cover unreimbursed medical expenses, if the total medical expense exceeds 7.5% of your adjusted gross income.
This makes a lot of sense, especially if you’re paying a high interest rate on your medical debt.
And it beats filing for bankruptcy.
4. Tax-Free Gifting
Estate planning brings another great use for an IRA.
If you contribute to a Roth IRA and you name your children and/or grandchildren as the beneficiaries, you can pass that money to them and they’re able to pull the money out tax-free!
5. Disability Pay
If you become disabled and are unable to work, you can draw income from your IRA as long as you provide documentation of the disability.
If you’re able to receive Social Security disability then this would be extra money on top of that.
Please Use Responsibly
Overall an IRA has a vast amount of uses, but the primary use is retirement.
However, if you’re caught in an emergency, an IRA is an option.
These are different ways of using an IRA, but you should typically only take advantage of these if that is your initial purpose in investing in the IRA.
Simply put: it shouldn’t be a last-minute decision to pull out a down payment for your home.
All of the usual rules apply when using money for these purposes. A Traditional IRA would still be hit with an income tax on the money you pull out and a Roth IRA would be tax-free income.
Another thing people forget is that you can always pull out your contributions without a penalty. It’s the capital gains that you pay the penalty on.
You can always open an IRA in 15 minutes or less with TD Ameritrade.
This article was originally published Nov 10, 2013.
Last updated: April 3, 2018.
The post 5 Little-Known Uses for an IRA (Other Than Retirement) appeared first on MoneyMiniBlog.