Can First Time Homebuyers Use IRA Money Without Being Penalized?

by Beth Winston

The rules around withdrawal from IRA accounts are very strict. In most instances, if you withdraw money from such a tax-advantaged retirement account before you are 59 1/2, you will suffer a 10 percent penalty. There are a few circumstances where early withdrawals are allowed, and buying a home is one of these.

Traditional IRA

The 1997 Taxpayer Relief Act stipulated that first-time homebuyers may take out $10,000 from a traditional IRA to meet the expenses of buying a property. You can take this cash without incurring the 10 percent early withdrawal penalty. However, you will be required to pay taxes on the withdrawal amount at your highest tax bracket. If you are buying a home with your spouse, you can both withdraw $10,000 from separate IRA accounts for the same purchase.

Roth IRA

The rules for a Roth IRA withdrawal are more advantageous than those for a traditional IRA. So long as you have had the account open for at least five calendar years, you may withdraw cash that you have contributed or earned for qualified homebuyer expenses without either taxes or penalties.

First Time Homebuyer

It doesn’t actually have to be the first time you bought a home in order for you to be eligible as a first-time buyer. The IRA withdrawal rules also apply to anyone who has not owned a home for at least two years and then gets back into the market.


In order to meet the exception rules you must use the cash you withdraw to buy the house within 120 days. When you file your taxes that year you must file IRS Form 5329 along with your federal return. If you used your Roth IRA you must also complete Form 8606.

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