Yes, but only under specific rules that limit how much you can take and when

You can withdraw money from a traditional or Roth IRA to put toward a house down payment without the usual 10% early withdrawal penalty — but only if you meet the IRS definition of a first-time homebuyer and you follow the exact withdrawal rules. The IRS allows up to $10,000 lifetime from an IRA for this purpose. If you have both a traditional and a Roth IRA, that $10,000 limit applies across all your IRAs combined, not per account.

The catch is that "first-time homebuyer" does not mean you have never owned a home. It means you have not owned a primary residence in the past two years. If you owned a home three years ago and sold it, you can use this rule. If you owned one two years ago, you cannot.

Withdrawals from a traditional IRA count as taxable income in the year you take them, which can push you into a higher tax bracket. Withdrawals from a Roth IRA are tax-free if the account has been open for at least five years, but if it has not, you pay tax on the earnings portion. The principal (money you contributed) always comes out tax-free from a Roth.

Key Takeaways

  • The IRS allows a one-time withdrawal of up to $10,000 from an IRA for a first-time homebuyer down payment, with no 10% early withdrawal penalty.
  • First-time homebuyer means you have not owned a primary residence in the past two years, not that you have never owned a home.
  • Traditional IRA withdrawals are taxed as ordinary income; Roth IRA withdrawals are tax-free if the account is at least five years old.
  • The $10,000 limit is a lifetime maximum across all your IRAs combined, not per account.
  • You must use the money within 120 days of withdrawal, and it must go toward buying, building, or rebuilding a primary residence.

How the $10,000 first-time homebuyer exception works

The IRS Code Section 72(t)(2)(F) allows you to withdraw up to $10,000 from your IRA without the 10% early withdrawal penalty if you are a first-time homebuyer. This is a one-time, lifetime exception — you cannot use it again, even if you sell the house and buy another one later.

The withdrawal must be used to pay for may have access to acquisition costs: the down payment, closing costs, inspection fees, appraisal fees, legal and accounting fees, title insurance, or points paid to reduce the interest rate on the mortgage. You cannot use it to pay off existing debt, cover moving costs, or buy furniture.

You have 120 days from the date you receive the withdrawal to use the money. If you withdraw the funds but do not close on the house within that window, you have a problem: you will owe income tax on the amount, plus the 10% penalty will apply retroactively. Some people withdraw early, the deal falls through, and they end up with an unexpected tax bill.

Traditional IRA withdrawals versus Roth IRA withdrawals

A traditional IRA withdrawal for a down payment avoids the 10% penalty, but you still owe income tax on the full amount you withdraw. If you withdraw $10,000, that $10,000 is added to your taxable income for the year. If you are in the 22% tax bracket, you will owe roughly $2,200 in federal tax on top of any state income tax. This can also trigger the Alternative Minimum Tax or reduce tax credits you were counting on.

A Roth IRA withdrawal is cleaner from a tax perspective, but only if the account meets the five-year rule. If you opened your Roth IRA at least five years ago, you can withdraw your contributions (the money you put in) tax-free and penalty-free at any time. You can also withdraw the earnings (investment gains) without the 10% penalty for the first-time homebuyer reason, but you will owe income tax on those earnings.

If your Roth IRA is less than five years old, the withdrawal is more complicated. Your contributions come out first and are always tax-free. Once you have withdrawn all your contributions, any additional withdrawal is treated as earnings, and you owe income tax on it (though still no 10% penalty). The five-year clock starts on January 1 of the year you made your first Roth contribution, not the date you opened the account.

What happens to your retirement savings

Withdrawing from an IRA for a down payment reduces the money that will grow for your retirement. If you are 35 years old and withdraw $10,000, that money will not have 30 years to compound. At a 7% average annual return, that $10,000 would grow to roughly $76,000 by age 65. You are trading long-term retirement security for a shorter-term housing goal.

The IRS does not require you to pay the money back into the IRA, unlike a 401(k) loan. Once it is out, it is out. If you later regret the withdrawal, you cannot undo it for tax purposes.

If you have a 401(k) through your employer, you may have another option: some 401(k) plans allow loans against your balance, and you repay the loan to yourself over time with interest. The interest goes back into your account, not to a bank. This keeps the money in the retirement system and avoids the permanent loss. Check your plan documents or ask your HR department whether loans are available.

Timing and documentation you need

Contact your IRA custodian (the bank, brokerage, or investment firm holding your account) and tell them you want to make a first-time homebuyer withdrawal. They will process the withdrawal and send you the money, usually within 3 to 5 business days. You will receive a Form 1099-R at tax time showing the withdrawal amount.

Keep records of how you used the money: receipts from your title company, closing statement, appraisal report, inspection report, or any other document showing the funds went to may have access to acquisition costs. The IRS does not typically ask for proof unless you are audited, but having it protects you if questions arise.

When you file your tax return, you will report the withdrawal on Form 1040 and may need to file Form 5329 (Report of Excess Contribution to Individual Retirement Accounts) to claim the exception to the 10% penalty. Your tax software or preparer should handle this, but mention the first-time homebuyer withdrawal when you file so they do not miss it.

When an IRA withdrawal is not the best choice

If you do not meet the first-time homebuyer definition (you owned a home in the past two years), withdrawing from an IRA triggers both income tax and the 10% early withdrawal penalty. On a $10,000 withdrawal, the penalty alone is $1,000, plus whatever income tax you owe. That makes it an expensive way to fund a down payment.

If your IRA is small and you are far from retirement, the tax hit might be manageable. If your IRA is large and you are close to retirement, the withdrawal can significantly reduce your retirement income. Run the numbers with a tax professional before deciding.

Other sources to consider: a 401(k) loan (if available), a gift from family, a personal loan, a down payment assistance program from your state or city, or delaying the purchase until you have saved more. Some first-time homebuyer programs offer down payment help or lower interest rates that might cost less than the tax bill from an IRA withdrawal.

Frequently Asked Questions

Can I withdraw more than $10,000 if I have multiple IRAs?

No. The $10,000 limit is a lifetime maximum across all your IRAs combined. If you have a traditional IRA with $50,000 and a Roth IRA with $30,000, you can still only withdraw $10,000 total for a down payment. The IRS counts all IRAs as one pool for this rule.

What if I withdraw the money but the home purchase falls through?

You have 120 days to use the money. If the deal closes within that window, you are fine. If it does not, you can put the money back into an IRA within 60 days and avoid the tax and penalty — this is called a rollover. If you miss the 60-day window, you owe income tax and the 10% penalty on the full amount.

Do I have to withdraw the full $10,000, or can I take less?

You can withdraw any amount up to $10,000. If you only need $6,000 for your down payment, withdraw $6,000. The unused portion of your $10,000 lifetime allowance is gone, though — you cannot use it later for another home purchase.

Can I use a Roth IRA withdrawal if my account is less than five years old?

Yes, but with a tax cost. Your contributions come out tax-free. Any earnings come out with no 10% penalty (because of the first-time homebuyer exception), but you owe income tax on those earnings. If your account is five years old or older, all withdrawals are tax-free.

Will an IRA withdrawal affect my mortgage application?

The withdrawal itself does not affect your credit score or mortgage approval. However, the money you withdraw reduces your liquid assets, which some lenders consider when deciding how much to lend. If you are on the edge of a lending threshold, the withdrawal might matter. Ask your lender before you withdraw.