Can You Use an IRA to Buy a House? Benefits, Conditions, and Recommendations

You can now use your IRA to buy your first home, according to IRS rules.

It can help you cover your down payment without a tax penalty.

We explain who qualifies, how it works, and whether it’s the right move for you.

If you’re buying a home for the first time, the IRS allows you to withdraw up to $10,000 from your IRA without the early withdrawal penalty.

This applies to both Traditional IRAs and Roth IRAs.

And if you’re married, you and your spouse can each withdraw $10,000—adding up to $20,000 toward your down payment.

Using an IRA to Buy Your First Home: Who Qualifies?

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You don’t have to be a total newcomer: the IRS defines a “first-time homebuyer” as someone who hasn’t owned a primary residence in the past two years.

This opens the door to using your IRA even if you’re re-entering the housing market.

But don’t forget: the rules vary depending on the type of IRA.

Roth IRA vs. Traditional IRA: Which Is Better?

Roth IRA: You can withdraw your contributions tax- and penalty-free.

If your account has been open for at least five years, you can also withdraw up to $10,000 in earnings without penalties.

Traditional IRA: You can also withdraw up to $10,000 without an early withdrawal penalty, but you will owe income tax on the amount.

In both cases, the withdrawal must be used specifically for a first-time home purchase.

Withdrawing IRA Funds: How Much Could It Cost You?

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Withdrawing money from your IRA might sound tempting, but it could seriously impact your financial future.

For example, if you’re 29 years old and withdraw $10,000 from your Roth IRA, you could end up with $80,000 less in retirement due to lost compound growth.

When Does It Make Sense to Use Your IRA for a Home Purchase?

When you have no immediate alternative and need to complete your down payment.

But experts caution it should be your last resort.

You’re giving up the most powerful benefit of an IRA: long-term, tax-free growth.

What Do Experts Say About Withdrawing IRA Funds?

Can You Use an IRA to Buy a House? – PHOTO: Canva

“We view using an IRA to buy a home as a last resort,” Sam Diarbakerly told Yahoo Finance, a financial advisor at Generation Capital Advisors.

“The real cost of $10,000 today is about $80,000 in the future,” the expert emphasized.

Other Options to Consider Before Tapping Into Retirement Savings

401(k) Loans: If your plan allows, you can borrow from your 401(k) without interrupting your IRA’s growth.

Federal and State Assistance: There are programs for first-time homebuyers with low or moderate income, such as forgivable loans or grants.

Doing your research can help you avoid sacrificing your retirement savings.

What to Expect If You Decide to Use Your IRA

If you choose to withdraw funds, make sure you meet all IRS requirements and consult with a financial advisor.

Not all banks or custodians process IRA withdrawals the same way, so plan ahead.