1. Buying a first-time home
Saving up for a down payment on a home can prove challenging, but if you have an IRA, you can remove up to $10,000 for a first-time home purchase. If you’re married, and your spouse has his or her own IRA, he or she can do the same so that collectively, you have $20,000 to put toward a home. The 10% early withdrawal penalty won’t apply here as long as you’re a first-time homebuyer, which the IRS actually defines as having not owned a home during the two-year period prior to your withdrawal. But if you owned a home seven years ago, sold it four years ago, and haven’t purchased another one since, you’re good to go.
Furthermore, the home you buy doesn’t have to be for you. You can withdraw that $10,000 from your IRA penalty-free to help a child, grandchild, or parent buy a home as well.
2. Paying for higher education
College is an expense prospect these days, so if you don’t have savings to pay for it, you can use your IRA instead. The 10% early withdrawal penalty won’t apply if you use that money to pay for qualified education expenses for you, a spouse, or a child. And by “qualified expenses,” we’re talking not just tuition, but supplies, books, fees, and even room and board, provided the student in question is enrolled at least half-time.