Unexpected ways to use those Roth IRA contributions

  • Funded with after-tax dollars, Roth IRAs are a handy way to save for more than just retirement.
  • Contributions, but not interest earnings, are always available for withdrawal.
  • Use Roth IRA funds to pay for emergencies, college expenses and a first home.
  • If already maxing out a 401(k) match at work, consider opening a Roth IRA, too.

Roth individual retirement accounts, in which after-tax deposits — and subsequent earnings — grow tax free, may be one of the best ways to save up for your golden years. But certified financial planner Sophia Bera, founder of financial advisory firm Gen Y Planning, says Roth IRAs can also come in handy long before account holders settle down into retirement.

Because tax has already been paid on monies deposited in a Roth IRA, contributions — but not the interest earned on them — can always be tapped for other purposes. For example, "if an emergency comes up, you can actually take out the money from your Roth IRA and use it for any purpose," Bera said. (One caveat: There are income limits on who can contribute to Roth IRAs.)

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Here's a look at three other unexpected ways to use a Roth IRA.

1. Getting smart. In addition to emergencies, a Roth IRA can be a useful way to save up for non-retirement expenses. One example: As a savings vehicle for a portion of a child's higher-education costs. Contribute the maximum $5,500 per year for 18 years, and you would be able to withdraw the resulting principal (which would total $99,000 in deposits by the time your kid turns 18) for college tuition costs. "The rest of the money in the account, or hopefully the earnings on the account, would then continue to grow for your future retirement."

Even better, Roth IRA monies aren't factored into the estimated family contribution on the Free Application for Federal Student Aid (FAFSA). "So you may qualify for more financial aid if you're using your Roth IRA to fund college as opposed to something like a 529 plan."

Because tax has been paid on Roth IRA contributions, deposited funds can always be tapped for other purposes.
designer491 | Getty Images
Because tax has been paid on Roth IRA contributions, deposited funds can always be tapped for other purposes.

2. Putting down roots. Buying your first home? You can access up to $10,000 in your Roth IRA to use for the purchase. Married couples can borrow up to $20,000 total ($10,000 from each account). Unlike with education expenses, "both the contributions and the earnings can be accessed in the case of a first-time homebuyer purchase," notes Bera.

3. Paying it forward. Come retirement time, there are no minimum distribution requirements from age 70½ with Roth IRA accounts — as there are with traditional IRAs and 401(k) plans — because deposits were made after paying taxes. Bera said this makes the Roth IRA a great way to pass money on to heirs. "If your children inherit your Roth IRA, they don't have to pay any taxes on the money when they withdraw it," she says. "That means they can continue to invest the money tax free, or they can withdraw the money to use for a down payment on a home" or any other purpose.

"If you are already getting your company match on your 401(k), I highly recommend you start a Roth IRA and max it out every year, because it's much more flexible than any other retirement account," said Bera.

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