You’ve heard it time and time again: An IRA is one of the best retirement savings options available. And it is! But if you use it right, it can be so much more than that. Here’s how you can use your IRA to pay less in taxes, buy a house, and even set your kids up for life.
Reduce your tax bill
If you qualify, an IRA contribution can be a great way to reduce this year's taxes. For example, a $6,000 deductible contribution (2019’s max) will save you as much as $1,925 in taxes. Best of all, you can wait until the last minute and do it right up until filing day.
If you're short on money this may not seem like an ideal solution, but if you can save now you ought to. If you can afford it, paying fewer taxes later on money that will grow is pretty much a no-brainer.
Use it to buy a house
Yeah, you read that right. While the point of an IRA is to save for retirement, there are other things you can do with it. If (and only if!) you’ve specifically opened up your Roth IRA to set money aside for your home purchase, you can withdraw the amount you’ve contributed (but not the earnings) penalty-free. There are a few approved reasons for making an early withdrawal, and purchasing a home is one of them. The rules are different for each type of IRA, so check out the details before you make the move.
There is a 10% early withdrawal penalty for non-approved withdrawals. Keep track of your contributions to avoid a tax bill and strategically take advantage of a great savings and growth vehicle.
Every financial circumstance is different, but generally, wiping out your earliest investments will set back your retirement savings by many years. Just something to keep in mind when if you do use this account this way. Make sure you're doing the right thing for you – for your current situation and your future.
Low-key plan your legacy
If you’re looking to leave your loved ones a little something, a Roth IRA could be your strongest estate planning tool. You can leave your beneficiaries tax-free income that can be stretched over their lifetime – essentially, you pre-pay taxes on their future income. That means your heirs (so fancy!) would receive tax-free income for the rest of their lives.
The trade-off is that you pay taxes now on the contribution. But if you anticipate leaving money to kids or grandkids, forgoing the tax break today can make their futures a lot brighter.
Which IRA is right for you?
All the ins and outs can be little much to take in, we break it down for you here.