IRA withdrawal for a home purchase: What you need to know

This article is for informational purposes only and is not intended to provide, and should not be relied on for, medical, legal, financial, or tax advice. You should consult with a qualified professional for advice specific to your situation. Consumers should independently verify that any services, products, or programs referenced meet their needs and comply with applicable requirements.

The average home buyer put down 10% in 2025, reported the National Association of REALTORS^®. It’s a significant upfront cost to plan for. You may be tempted to withdraw from your Individual Retirement Arrangement (IRA) for your down payment. But IRS rules and financial considerations mean you need to be careful withdrawing from and replenishing an IRA.

This article goes heavily into the tax implications of withdrawing from your IRA for a home purchase. It’s not intended to be personalized tax advice. If you have any doubts about reporting accurately to the government, consult a tax professional.

Key takeaways:

• Understand the tax impact: Different tax rules and penalties apply depending on whether you have a traditional IRA or a Roth IRA.
• Utilize the first-time buyer exemption: Qualified first-time home buyers can withdraw up to $10,000 to buy, build, or rebuild their first home without facing the standard 10% early withdrawal penalty.
• Explore all your options: Tapping into retirement funds early reduces your long-term earnings, so it’s wise to explore alternatives like down payment assistance or gift funds before making a withdrawal.

Traditional IRA vs. Roth IRA

If you have or are considering an IRA to save for your future retirement expenses, you should be aware that the tax treatment is different depending on whether you have a traditional IRA or a Roth IRA.

A home buyer can also take a loan against qualified 401(k)s to buy a house, among other retirement plans, that they plan to use as their principal residence. The loan has to be repaid within 5 years with payments made in at least quarterly increments.

The loan amount you can generally take from your 401k to buy a home is:

• $10,000 or 50% of your vested account balance, whichever is greater, if 50% of your balance is less than $10,000
• $50,000 or 50% of your vested account balance, whichever is less, is generally the maximum

Tax laws can change so always consult a professional tax advisor if you have questions.

Penalties and rules for withdrawing IRA funds

The answer to the question, “Can I use my IRA to buy a house?” is yes. But it’s a bit more complicated than that.

The rules allow you to make a withdrawal under certain conditions, but it’s important to follow the guidance of the IRS and seek additional tax advice if you have questions.

Early withdrawal penalties

If you make an early withdrawal – also called a distribution – of your IRA funds, you may have to pay a 10% additional tax on the early withdrawal. For example, if you withdraw $10,000 from an IRA without qualifying for an exception, there would be a penalty of $1,000 on top of any withdrawal-related income tax.

There are special rules regarding distributions from Roth IRAs that have been converted from a traditional IRA or rolled over from previous Roth accounts in the last 5 years.

If you take a distribution during the 5 years after the conversion or rollover, it can be subject to a 10% tax penalty. Regular contributions to Roth accounts are never taxable because you’ve already paid the taxes. In the event of an early distribution, investment earnings and certain conversions are what may matter. You can find the taxable amount by filling out Form 5329.

If you have a traditional IRA or have met the 5-year rule for Roth IRAs, there are a number of exemptions to the 10% tax penalty. We’ll discuss the first-time home buyer exemption and the normal post-retirement process.

First-time home buyers

You can withdraw up to $10,000 over the course of your lifetime to buy, build, or rebuild your first home. To be considered a first-time home buyer, the IRS dictates that neither you nor your spouse can have had ownership in a primary residence during the 2-year period prior to acquiring the home. Your spouse can also make the same $10,000 penalty-free withdrawal.

The date of acquisition is considered the day you enter a contract to buy an existing home. If the home is being built or rebuilt, it’s the day construction starts.

You’re not limited to spending the money on your own house. You can use your IRA withdrawal to contribute to the purchase of a home for any of the following people, as long as they’re first-time home buyers:

• Yourself
• Your spouse
• Your or your spouse’s child
• Your or your spouse’s grandchild
• Your or your spouse’s parent or other ancestor

For this to be considered a first-time home buyer distribution, you must use the funds toward home purchase costs before the end of the 120th day after you receive them. The IRS considers the following home purchase costs:

• Costs to buy, build, or rebuild the home
• Any usual or reasonable settlement, financing, or other closing costs

Unfortunately, sometimes a purchase agreement or construction falls through. In that case, you can avoid an early distribution penalty by contributing the amount withdrawn within 120 days of the original distribution.

Withdrawing at 59½ years old or older

At 59½, you’re considered retirement eligible by the IRS and can withdraw from your IRA penalty-free. This is when the government figures you could very well be retired and pulling from retirement funds. You would pay taxes on any distributions from a traditional IRA, but there’s no additional penalty. Roth distributions are tax-free.

How to withdraw from an IRA for a home purchase

If you’re looking to withdraw from an IRA to purchase a home, you can take the following steps:

• Contact the administrator of your IRA. The administrator will be able to give you details regarding next steps.
• Fill out any necessary forms. There’s likely to be paperwork to fill out letting your administrator know, among other details, how much you want to withdraw.
• Get the funds. Make sure there is a record of the transaction because the funds may need to be sourced for the mortgage lender.
• Use the funds within 120 days. This time frame is the last hurdle to avoid paying a tax penalty. If the deal falls through, simply contribute the money again by the end of this period. To give yourself a better chance of avoiding this issue, be sure to get all the documentation to your lender as soon as possible to speed things along.

Pros and cons of making an IRA withdrawal for a home purchase

We’ll go over alternatives in a few paragraphs, but withdrawing from your IRA isn’t the only option. Make sure you’re aware of the upsides and downsides.

Pros

• You’re able to buy a home. If you’re having trouble coming up with the necessary funds for a down payment, an IRA withdrawal could be the thing that helps make homeownership a reality.
• You can qualify for penalty-fee exemptions. If you meet first-time home buyer qualifications, there’s no tax penalty associated. You can withdraw $10,000 ($20,000 with a spouse).
• It's not a loan. Because there’s no borrowing involved, there’s nothing to pay back.

Cons

• You’ll have less money in retirement. Even if you plan to contribute more to your IRA later to make up for taking the funds out, that’s time that you’re not earning returns on the money if it were in your account. You could get data for the returns on your IRA going back as far as you can and match the withdrawal plus earnings later. But even if you have the resources, there’s no guarantee the funds wouldn’t have outperformed historical returns had they been left there. You could be leaving money on the table.
• Penalty fees are possible. If you withdraw more than $10,000 ($20,000 if married) prior to age 59½, you’ll have to pay a 10% early withdrawal penalty in addition to any other income tax that may be owed based on the distribution.
• It’s not a loan. Yes, this is both a pro and a con. Other retirement tapping options involve a loan that you pay back with interest so that you don’t lose out on money you could have been earning when it’s withdrawn.

Alternatives to withdrawing from your IRA

Withdrawing from your IRA has negative implications for your retirement savings because any money you withdraw now takes away from money you could be using later in life. That’s before considering the potential tax implications associated with an early withdrawal. There’s also the practical reality that $10,000 may not be enough to fund your down payment. Here are alternatives to consider:

• Take a retirement loan. This isn’t always available, but employers can offer retirement account loans. Ask your employer about loan terms. If enough interest is charged, you may not be giving up money for retirement. You’re paying back your future self.
• Look into down payment assistance. Down payment assistance can be used for that purpose and for other closing costs. It typically comes in the form of grants, forgivable loans, deferred loans, or loans that are immediately repayable. Confirm what your lender will take before accepting assistance.
• Consider gift funds. Family members can gift you funds for a down payment. In some circumstances, it can even come from your union, employer, or a government agency that provides homeownership assistance to low- or moderate-income or first-time home buyers. If you’re getting a discount buying through a family member, this can go toward your down payment as a gift of equity.

FAQ

Now that we’ve touched on the ins and outs as well as the pros and cons, let’s answer a few questions.

Can I withdraw from my IRA as a first-time home buyer?

You can withdraw from an IRA at any time. However, being a first-time home buyer means that you won’t be subject to a tax penalty as long as you haven’t had ownership interest in a main home in the 2 years prior to your purchase. You and your spouse, if you have one, can withdraw up to $10,000 without an additional tax penalty. Standard income tax may still apply.

Can I use my Roth IRA to buy a house?

Like a traditional IRA, a Roth IRA can be used to buy a house. However, the same 10% additional tax penalty applies if you don’t meet the requirements for first-time home buyer status or another exemption. In the case of a Roth IRA, the 10% tax may apply on earnings. Income tax doesn’t apply when withdrawing past contributions because these are contributed after taxes are removed.

Is it a good idea to withdraw from my IRA for a house?

There’s a potential 10% tax penalty for early withdrawal from your IRA that can be avoided as a qualified first-time home buyer. But the other thing to keep in mind is the potential lost earnings in your retirement fund that you would see if you left the funds in your account. You can try to calculate lost earnings, but you could still end up losing money if the fund outperforms your expectations.

How do I report an IRA withdrawal on my taxes?

Regardless of whether the IRA withdrawal is a qualified one, you’ll need to report any taxable income from the distribution on your 1040. If you have to pay a 10% tax penalty for a nonqualified distribution, you may need to fill out IRS Form 5329. Be sure to consult a tax advisor.

The bottom line: Withdrawing IRA funds early comes with penalties

While making an IRA withdrawal for a home purchase can provide the funds you need to get to the closing table, doing so before age 59½ often triggers a 10% tax penalty.

First-time home buyers can take advantage of an exemption to withdraw up to $10,000 penalty-free, but ordinary income tax may still apply depending on the type of account you have.

Tapping your retirement account limits your long-term wealth, so it's smart to explore alternatives like down payment assistance or gift funds first.

If you've explored your options and are ready to take the next step toward homeownership, you can apply for a loan with Rocket Mortgage today.

This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.

Rocket Mortgage is a trademark or service mark of Rocket Mortgage LLC or its affiliates.