Buy a house
An IRA can also come in handy if you're ready to pursue the American dream but can't scare up the cash for a down payment.
The federal government allows first-time homebuyers to use up to $10,000 of their IRA assets to buy, build or rebuild a primary home without incurring a penalty.
First-time homebuyers are defined as anyone who has not owned a home in the past two years. If you and your spouse qualify as first-time buyers, you can each receive distributions of up to $10,000 without paying the early withdrawal penalty.
"I have no problem in this housing market telling clients to take $10,000 out of their IRA to purchase a home," says Balcom, who notes mortgage loans are considered good debt. "Prices have fallen substantially in many markets, so it's a great time to buy."
Give your heirs a tax-free gift
If you're looking to leave a little behind for your loved ones and your nest egg is comfortably feathered, your IRA can be used for estate-planning purposes.
By opening a Roth IRA (or converting a traditional IRA that you won't need for retirement funds into a Roth) and naming your kids or grandchildren as the beneficiaries, you'll be able to pass along that money to your heirs income-tax-free, says Mark Luscombe, a principal analyst with CCH, a tax and accounting firm in Riverwoods, Ill.
Those who inherit a traditional IRA will owe income tax on the distributions, since it was funded with pretax dollars.
A Roth is optimal for estate-planning purposes, says Luscombe, because you can continue to contribute to it after age 70½ as long you're still working, and there are no required minimum distributions. (Should you convert to a Roth IRA? Find out with MSN Money's calculator.)
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