Tapping Your IRA to Purchase a Home

You may want to take advantage of one of the Roth IRA withdrawal exceptions to purchase a first home.

According to the IRS rules, you can avoid paying the 10% early withdrawal penalty on early withdrawals if you use those funds to buy, build, or rebuild a first home.

However, to qualify as a first-time home buyer, you must meet all of the following requirements:

1) The withdrawn funds must be used to pay qualified acquisition costs before the close of the 120th day after the day you received it.

2) The buyer must not have owned a principal residence within the two-year period ending on the purchase date.

3) The withdrawn funds must be used to pay qualified acquisition costs for the main home of a first-time home buyer who is either yourself, your spouse, or either of your children, grandchildren, or parents (in other words, a direct line descendant).

Note that you can use the withdrawal to help a spouse, children or grandchildren with a home purchase. But, remember this is a lifetime cap of $10,000. So if you want to help out four children, you would need to divide the $10,000 among them.

4) The withdrawn funds used for this purpose cannot total more than $10,000 in your lifetime.

One major con to pulling funds from your IRA is that once you take it out you will be bound by annual deposit limits to replenish your withdrawal.

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