5 Things You Can do With Your Roth IRA (Besides Retire)
The ability of a Roth IRA to quickly accumulate earnings for your retirement is legendary. But sometimes, life throws you a curveball and you find yourself short on cash. Fortunately, Roth IRA rules allow you to use your retirement funds for other things. Here are five situations where you may be able to tap into your Roth IRA funds:
You’re Buying Your First Home
If your Roth IRA has been established at least five years, you can withdraw all of your contributions plus up to $10,000 of growth income if you are using the money to buy a first home. The advantages of owning your own home greatly outweigh the growth hit that your IRA will take.
You Have Unreimbursed Medical Expenses
One of the nice things about a Roth IRA is that you can withdraw your contributions for almost any reason without penalty; after all, you paid the taxes on the money before you deposited it in your account. If you get sick and have expenses that your insurance won’t pay, or if you’ve lost your job and your health insurance, you can use your Roth IRA funds to cover your expenses.
You Need To Pay for College
You can use your Roth IRA to pay for all of your school-related expenses, as long as they are “qualified education expenses.” Qualified education expenses include books, tuition, fees, supplies, and tuition that are paid to a properly accredited institution. For room & board, you’re on your own: you can’t pay living expenses with your Roth IRA funds. You can use the funds to pay for your spouse, your children, your spouse’s children, your grandchildren, or your spouse’s grandchild.
You Want To Invest In Income-Producing Real Estate
IRA rules allow you to own almost any kind of investment real estate: single-family or multi-unit homes, condos, co-ops, apartment buildings and even land. The income from the property is added right back into your IRA account. When you sell the property, the profit from the sale goes into your account as well. When you invest in real estate, it’s normally best to pay cash; a different set of tax rules apply if you finance the deal and just use your IRA for the down-payment. By having your retirement plan grounded in real estate, there is a potentially high rate of return, and by diversifying your portfolio you lower your risk over the long run.
You Want To Buy A Business
You can buy a business by setting up a self-directed IRA and establishing a Limited Liability Corporation. The IRA owns the LLC, and you become the directing member of the LLC. As directing member, you are free to invest the IRA funds however you please. All of the profits from business transactions stay in the LLC account, earning compound interest. Of course, businesses also lose money sometimes, so be sure that you are comfortable with the potential loss of your retirement funds before you take the entrepreneurial plunge.
A Flexible Source of Funds
A Roth IRA is a powerful financial tool. Not only does it compound interest and earnings at an impressive rate, it gives you the flexibility to spend to funds as you need to.
