How to Take Money Out of an IRA for a First Home

by Michael Keenan

One of the few exceptions that allows people to take money out of a traditional IRA penalty-free before turning 59 1/2 years old is to buy a first home. To qualify as a first-time home buyer, you, and your spouse if applicable, must not have owned a home for the past two years. The Internal Revenue Service caps this exception at $10,000 per person, so a couple could each take out $10,000 each, for a total of $20,000. Taking the money out of your IRA is the easy part. Once you have done so, you have to properly report it on your income tax return.

1. Request a distribution from your IRA. Your financial institution may require an institution-specific form, but it cannot stop you from taking money out.

2. Pay for the qualified acquisition costs of your house within 120 days of taking the distribution. If you wait more than 120 days, you do not qualify for the first-time home buyer exemption.

3. Complete Form 5329 to denote that you claim the first-time home buyer exemption from the early withdrawal penalty. On line 1, report the total amount of your distribution. In the space next to line 2, enter the code "09." This code alerts the IRS that the exemption you claim is for being a first-time home buyer. As long as your distribution does not exceed $10,000 and you use it for qualifying costs, you do not owe any early withdrawal penalty. If you elect to withdraw more than $10,000, you will owe a 10 percent penalty on the amount exceeding $10,000. For example, if you take out $15,000, even if you have $15,000 of qualifying costs, you would owe the early withdrawal penalty on $5,000.

4. Report the amount of your distribution as a taxable IRA withdrawal on line 15b of Form 1040. This amount increases your taxable income for the year. Even though you avoid the early withdrawal penalty, you cannot avoid the income taxes.


  • Only qualifying costs can be used for the exemption. The IRS defines qualifying acquisition costs as those related to buying, building or rebuilding a home, as well as any usual or reasonable settlement, financing or other closing costs.

Items you will need

  • IRS Form 1040
  • IRS Form 5329

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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