With all after-tax retirement plans, including the traditional IRA, the Internal Revenue Service imposes a tax on withdrawals taken before age 59 1/2. Known as the early distribution or premature withdrawal penalty, the charge amounts to 10 percent of the withdrawal. One of the exceptions to this penalty, at least when it comes to traditional IRAs, is for the first-time purchase of a home.
The IRS has a fairly lenient interpretation of the term "first-time," so you can take an early distribution without penalty when buying a home for yourself, your immediate family, your parents or your grandchildren. Additionally, the purchase does not technically have to be your "first time" home purchase. To meet the requirement, you must simply not have owned a home for the two years immediately prior to your home purchase. The IRS does impose a lifetime limit of $10,000 on withdrawals for first-time home purchases, however.