Can You Take Out IRA & Roth IRA Money to Use for a Down Payment?
You may have started an IRA long before you thought about buying a house. As this money accumulates, it can become the largest asset you have. When looking for a home and considering how to fund a down payment, you may want to leverage this asset to access valuable funds for a first home.
Other People Are Reading
-
Limited Amount
-
You're able to take a limited amount of money out of an IRA, traditional or Roth, to use for a home purchase. You can use a maximum of $10,000 toward a down payment on a first-time home purchase. This can be for yourself, your spouse, your child or your parent.
Penalty Exception
-
No matter how old you are, you won't have to pay the 10 percent tax penalty for taking money out of an IRA before age 59 1/2 for a home purchase, building or rebuilding.
-
Time Frame
-
The distribution must be used for the home purchase within 120 days of receipt of the money, or you will be penalized. If the home purchase does not close within the 120 days, the money can be returned to the IRA, but it may be considered a rollover, which can be done only once every 12 months.
Tax Implications for Traditional IRA
-
Funds taken out of a traditional IRA for a home purchase will not incur the 10 percent tax penalty for withdrawing money before 59 1/2, but they will be added to your adjusted gross income and taxed accordingly.
Roth Considerations
-
Roth IRAs require that the funds be held in the account for a minimum of five years before withdrawal to avoid taxes or penalties. Because Roth IRAs grow tax free with after-tax contributions, an early withdrawal could create a double tax on the funds.
-
