Traditional IRAs can give you a tax break and grow tax-deferred. Roth IRAs are funded by after-tax money and grow tax-free. Along with your 401(k), IRAs will likely constitute the bulk of your retirement savings. But IRAs can also be used for non-retirement purposes. If you’re buying your first home or paying for college, you can take a distribution from your IRAs without the usual 10% early withdrawal penalty.
You can withdraw up to $10,000 from your IRA for the purchase of a first home. If you’re married, you can each take $10,000 out of your individual accounts for a total of $20,000. And this rule is very flexible:
When it comes to school costs, no penalty will be assessed as long as your IRA money goes toward qualified schooling costs for yourself, your spouse or your children or grandchildren. This means the withdrawal must be used for tuition and school fees. Moreover, the school has to be IRS approved institution — this is any college, university, vocational school or other post-secondary facility that meets federal student aid program requirements.
Since Roth IRAs are taxed differently than traditional IRAs, the rules for a qualified distribution are a little different. With a Roth IRA, you can always withdraw your original contribution completely tax-free as long as you have had the Roth for five years or more.
In the end, you should really try to avoid using your IRA savings for anything other than retirement, but it’s nice to know you have that money for certain life events if absolutely necessary.