Bank like a financial pro with the Alliant mobile app. Make payments, deposit checks, manage cards and so much more.
Renovate your kitchen, pay off high-interest debt, or have access to emergency funds when you need it with an Alliant Home Equity Line of Credit.
Browse new and used vehicle inventory, and qualify for a rate discount when you buy!81
Separate each of your savings goals into an Alliant Supplemental Savings Account so you can visualize your progress.
An IRA or Individual Retirement Account is a financial account that allows you to save for retirement. There are two primary types of IRAs that offer tax advantages: Traditional IRA and Roth IRA. There are other types of IRAs, such as a Simple IRA or SEP IRA, but they have more niche use cases.
Contributions to a traditional IRA are typically tax-deductible the year you contribute. Qualified withdrawals from your Roth IRA (in retirement and on other occasions listed below) are not taxed. The type of IRA you contribute to will depend on your personal needs. It’s advisable to talk to a tax professional and a certified financial planner to discuss what option works best. Before your meeting, make sure you’re in the know about your options. We break down the advantages of a Roth IRA below.
A Roth IRA is a fantastic investment tool for retirement. The flexibility of a Roth IRA can help you accomplish many goals. Do you know all the ways you can use a Roth IRA to your advantage? We’ve come up with six reasons why a Roth IRA could be a good investment for your future.
Even if you’ve already maxed out your 401(k), it’s likely you can also contribute to a Roth IRA for even more tax-advantaged savings.1 You won’t see the tax breaks now. Instead, you’ll get a tax break in the future, as Roth earnings and withdrawals are generally tax-free. Why? Contributions to a Roth IRA are made after your income is taxed. Since you have already paid taxes on this money, you do not need to pay them again as you withdraw. Your earnings can build tax free.
The tax advantages of a Roth IRA are especially beneficial to young earners. You will most likely earn more as you age, which means that your tax bracket will also increase. The benefit to paying taxes now is that your income tax could be at a higher rate in future years.
If a crisis hits, your Roth IRA can provide additional emergency funds. Contributions (not earnings) can be withdrawn without penalty.2 Plus, withdrawals of contributions are tax-free at any time. Although a Roth is meant to be used as a retirement account, you will not get penalized for taking out your contributions prior to retirement. This means you could have an emergency fund in case of job loss, injury or anything else unexpected.
Keep in mind that many emergency financial situations, such as job loss, are often accompanied with a market downturn, meaning your Roth IRA may be worth less when withdrawing funds. Plus, you'll be giving up years and potentially decades of tax-free growth. Still, knowing you have your Roth IRA as a backup emergency fund if you truly need it can provide excellent peace of mind.
Use your contributions – and up to $10,000 of earnings – to buy your first home (or to gift your child or grandchild money for their first home).3 Again, this withdrawal is tax-free.
First-time home buyers can use this money if the account has been open for five years and if the funds will be used directly toward the home purchase. That includes the down payment and closing costs. If the funds do not go directly to the home purchase, earnings will be taxed and you will be hit with a 10 percent penalty.
If you’re a young earner, we only recommend doing this if you’ve set aside this Roth IRA for buying a home. If you’re planning to use this money for retirement, you could wipe out a significant contribution that would otherwise grow through decades of compounding interest.
Your Roth IRA can pay qualified educational expenses for you, your spouse, your child or your grandchild. As an alternative to a 529 college savings plan, which are state operated tax-advantaged accounts that can be used to pay for qualified college expenses, you can set up a Roth IRA to pay for future college expenses. The withdrawal of your contributions for educational expenses is tax-free, as in the scenarios above. However, earnings withdrawals are subject to tax. It’s important that the funds go directly toward educational expenses. If they’re not used for education, you’ll be hit with a 10 percent penalty.
A Roth IRA is also a great way to save for an education because of the spending flexibility. If you do not use all the funds for education, the money can continue to compound until your retirement or be used for other expenses, including the ones we’ve mentioned in this article.
Tax-free Roth funds give you the flexibility to manage your taxable income during retirement, potentially reducing Medicare premiums and income taxes.4 Many economists predict that income taxes will rise. If that is the case, then you will be saving money on taxes with a Roth IRA. As we mentioned earlier, your contributions to a Roth IRA are made after income taxes. This means you do not have to pay taxes when you withdraw those contributions. After age 59.5 and five years after you first opened your Roth IRA, your earnings are also tax-free.
Roth IRAs are a valuable estate planning tool, especially if you have significant savings and may not need all of it to fund your retirement.4 Those beneficiaries inheriting a Roth IRA do not need to pay income taxes on their withdrawals (unless your estate is subject to estate taxes). It would be a wonderful gift to the ones you love and would help ensure they are set up for success.
While the information provided is based on our understanding of current tax laws, and has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
1. The 2024 Roth IRA Modified Adjusted Gross Income (MAGI) Limit is $230,000 for married couples filing jointly and $146,000 for singles. The 2025 Roth IRA Modified Adjusted Gross Income (MAGI) Limit is $236,000 for married couples filing jointly and $154,000 for singles. Consult with your tax advisor for additional tax information. 2. You can withdraw any funds you contributed to the account tax- and penalty-free. If your account has not been open for five tax years, withdrawals of account earnings are subject to income tax and early withdrawal penalties (unless your emergency is a qualifying event such as becoming permanently disabled). If your Roth IRA has been open for five tax years, distribution of $10,000 of your earnings to fund a first-home purchase is not subject to income taxes or early withdrawal penalties. If your account has been open for less than five tax years, the $10,000 is not subject to early withdrawal penalties, but it is taxable income. 3. The IRS defines qualified expenses as "amounts paid for tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution." 4. Consult your tax, financial or estate planning advisors about how you might potentially reduce your taxable income in retirement or about the taxation of your estate, including Roth IRA funds.
with an Alliant high-rate saving account
with award-winning saving rates and loans
Get even more personal finance info, tips and tricks delivered right to your inbox each month.
Thanks for subscribing to Alliant's Money Mentor newsletter! You will now receive personal finance tips in your email inbox each month.
You are leaving Alliant’s website to enter a website hosted by an organization separate from Alliant Credit Union. The products and services on this website are being offered through LPL Financial or its affiliates, which are separate entities from, and not affiliates of, Alliant Credit Union.The privacy and security policies of the site may differ from those of Alliant Credit Union.
You are leaving an Alliant Credit Union website and are about to enter a website operated by a third-party, independent from Alliant Credit Union. Alliant Credit Union does not manage the operation or content of the website you are about to enter. Alliant Credit Union is not responsible for the content and does not provide any products or services at this third-party website. The privacy and security policies of the site may differ from those of Alliant Credit Union.
