Here’s a look at three other unexpected ways to use a Roth IRA.
1. Getting smart. In addition to emergencies, a Roth IRA can be a useful way to save up for non-retirement expenses. One example: As a savings vehicle for a portion of a child’s higher-education costs. Contribute the maximum $5,500 per year for 18 years, and you would be able to withdraw the resulting principal (which would total $99,000 in deposits by the time your kid turns 18) for college tuition costs. “The rest of the money in the account, or hopefully the earnings on the account, would then continue to grow for your future retirement.”
Even better, Roth IRA monies aren’t factored into the estimated family contribution on the Free Application for Federal Student Aid (FAFSA). “So you may qualify for more financial aid if you’re using your Roth IRA to fund college as opposed to something like a 529 plan.”
2. Putting down roots. Buying your first home? You can access up to $10,000 in your Roth IRA to use for the purchase. Married couples can borrow up to $20,000 total ($10,000 from each account). Unlike with education expenses, “both the contributions and the earnings can be accessed in the case of a first-time homebuyer purchase,” notes Bera.
3. Paying it forward. Come retirement time, there are no minimum distribution requirements from age 70½ with Roth IRA accounts — as there are with traditional IRAs and 401(k) plans — because deposits were made after paying taxes. Bera said this makes the Roth IRA a great way to pass money on to heirs. “If your children inherit your Roth IRA, they don’t have to pay any taxes on the money when they withdraw it,” she says. “That means they can continue to invest the money tax free, or they can withdraw the money to use for a down payment on a home” or any other purpose.
“If you are already getting your company match on your 401(k), I highly recommend you start a Roth IRA and max it out every year, because it’s much more flexible than any other retirement account,” said Bera.
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