You probably know that using a Roth IRA to save for retirement is a smart move that also cuts your taxes. But what you may not know is that unlike other types of retirement accounts, you can spend it before retirement. Laura explains the unique flexibility of a Roth IRA and covers 4 ways you’re allowed to make penalty-free withdrawals from a Roth IRA to spend anytime you like.
3. Medical expenses.
If you plan to pay for medical expenses for you, your spouse, or your dependents, a certain amount is exempt. You can avoid a Roth IRA penalty on earnings to pay medical costs that exceed 10% of your adjusted gross income, if you haven’t been reimbursed for them by a health insurer, company, or individual.
4. Health insurance.
The last way you can avoid paying a penalty on Roth IRA withdrawals of earnings is health insurance premiums—but only during a period of unemployment. The person out of work could be you, your spouse, or your dependents.
These 4 types of expenses are not the only ways to avoid paying the early withdrawal penalty on Roth IRA earnings. Be sure to see IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) for more information.
See also: The Rules for Using a Spousal IRA
What If You Have No Plans for Spending Funds in a Roth IRA?
You know you should be saving for retirement. There comes a time when every one of us will need to stop working due to physical or mental limitations—or when we choose to transition to a lower paying career or to quit altogether.
But even if you have no idea how you’ll spend money that you squirrel away, the beauty of putting it into a Roth IRA is that it’s not completely locked away. There’s so much flexibility and great tax breaks that there’s very little downside to using these great accounts.
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