IRA Withdrawal for Down Payment on Home

Q. I am making my first home purchase. Can I take money out of my IRA to help with the down payment?

A. Generally, withdrawals from a traditional IRA before the age of 59 ½ are subject to income tax and a 10% penalty. There are several exceptions to the 10% penalty, one of which is a distribution for a first time home purchase.

You can take up to $10,000 from your traditional IRA to purchase your first home without incurring the 10% penalty.

There are some rules to keep in mind, however:

1. The purchase must be for a principal residence – qualified costs include costs to build, buy or rebuild a home.

2. The person purchasing the residence must be the IRA account owner or a family member (within limits).

3. To qualify as a first-time homebuyer, you must not have owned a home at any time during the two years prior to the IRA withdrawal. If you are married, your spouse must also meet this requirement.

4. The 10% penalty exception only applies to the first $10,000 you withdraw from your IRA (this is a lifetime limit) – if you are married and both spouses qualify as first time homebuyers, you can each withdraw $10,000 from your IRAs penalty free.

5. You must use the IRA funds within 120 days of the withdrawal to qualify for the exception.