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The Roth IRA has been dubbed the Swiss Army knife of retirement for its versatility. And you need to own only 1 because it serves many purposes.
Just like the handy tool with its dominant essential blade, Roth IRAs have lots of auxiliary parts, but 1 primary advantage: Investors owe no tax when it’s time to take Roth IRA distributions.
With traditional IRAs, you receive an upfront tax deduction on your contributions in exchange for taxable income when you take the money out. The opposite is true with a Roth IRA: You save money on which you’ve already paid tax. But you’re spared from having to pay tax on either the principal or the earnings at retirement.
An added advantage: There is no penalty for taking out your contributions from a Roth IRA at any time.
However, you will owe taxes and a penalty if you take out the earnings before age 59 1/2 except under certain circumstances. But that is often a very small percentage of the total you’ve salted away.
This beautiful arrangement makes a Roth IRA good not only for retirement savings, but also for other kinds of savings. Here are 4 times when you can take money out of a Roth IRA for other things.