It’s important to have a personal budget and a long term financial plan because they help ensure the safety and comfort of ourselves and our families. But even the most well considered and reasonable plans can run into roadblocks. In these cases, proper use of your self-directed IRA can help you make it through difficult family adjustments.
Helping Your Child Pay for College
Having your kids go off to college can be an exciting time, but it can also cause some serious difficulties for your family budget. Even if you have been diligent in planning for your child’s education, what if they’re accepted into a more prestigious school that costs more than you budgeted for? What if they did not receive the scholarships or financial aid you anticipated? Or what if tuition has increased more over the years than you planned for?
You can take penalty-free withdrawals from your self-directed IRA in order to pay for various types of educational expenses for any member of your immediate family. This means that you can use funds from your self-directed IRA to pay for your child’s tuition, room and board, books and other fees if you find that your other financial resources are not adequate.
Unexpected and Unreimbursed Medical Expenses
Significant and unexpected medical expenses that are not covered by your insurance policy can cause serious financial difficulties for your family. To the extent that those medical expenses are for someone in your immediate family and they exceed 7.5% of your adjusted gross income during the year they were incurred, you can take penalty free withdrawals from your self-directed IRA to pay for that excess amount.
Premiums for Medical Insurance
If you find yourself out of a job, you’ll find your family finances challenged on a number of fronts. But no longer having access to employer sponsored health insurance plan could be particularly difficult. Unfortunately, you might be forced to choose between paying for a market rate insurance policy out of your own pocket, or have to cut back on your insurance (or potentially drop it altogether).
You can lessen the impact of having to pay for your own premiums by using funds from your self-directed IRA without having to pay a penalty for early withdrawals from your account. You are permitted to make these penalty-free withdrawals when you’re receiving federal or state unemployment compensation for at least three months.
Besides being such a powerful retirement planning tool, your self-directed IRA can be used to help you make it through difficult family times. And if you have created your self-directed IRA as a Roth account, you won’t have any tax liabilities for the withdrawals.
But keep in mind that any withdrawals you make from your account will reduce the amount you’ll have in your account when it comes to retire. Only take advantage of the permitted early withdrawal provisions when absolutely necessary. Contact a Quest Trust Company specialist to discuss more.