Yes, you can withdraw from your IRA for a down payment, but the rules depend on which type of IRA you have and whether you've ever bought a home before

The most straightforward path is the first-time homebuyer exception. If you've never owned a home (or haven't owned one in the past two years), you can withdraw up to $10,000 from a traditional IRA or Roth IRA without the usual 10% early withdrawal penalty. You'll still owe income tax on the withdrawal from a traditional IRA, but not from a Roth IRA if you've held it for at least five years.

If you don't may have access to as a first-time buyer, or if you need more than $10,000, you have other options — but they come with different costs. You can withdraw any amount from your IRA, but you'll face a 10% penalty plus income taxes on the full amount unless an exception applies. Some people take a loan from their IRA instead, which avoids the penalty but has its own rules and risks.

The choice between these routes depends on your age, how long you've had the account, and how much you need. Understanding each option before you withdraw helps you avoid a costly mistake.

Key Takeaways

  • The first-time homebuyer exception lets you withdraw up to $10,000 from either a traditional or Roth IRA without the 10% early withdrawal penalty if you haven't owned a home in the past two years.
  • A withdrawal from a traditional IRA counts as income and you'll owe federal income tax on it, even with the first-time buyer exception.
  • A withdrawal from a Roth IRA is tax-free if you've held the account for at least five years, making it often the better choice for down payments.
  • If you need more than $10,000 or don't may have access to as a first-time buyer, you can still withdraw, but you'll pay both a 10% penalty and income tax on the full amount.
  • An IRA loan (available only with certain employer plans that allow it) lets you borrow from your own account without penalty, but you must repay it on a set schedule or face taxes and penalties.

The first-time homebuyer exception: $10,000 without the penalty

This exception is the reason many people think of their IRA as a down payment fund. The IRS defines a first-time homebuyer as someone who has not owned a home during the two-year period ending on the date of the home purchase. This includes people who have never bought a home, people who are divorced or widowed and didn't own a home with their ex-spouse, and people who are buying with a spouse for the first time even if one spouse owned a home before.

The $10,000 limit is a lifetime cap, not an annual one. If you withdraw $10,000 now, you cannot withdraw another $10,000 later under this exception, even if you buy a second home decades from now. The withdrawal must be used for "may have access to acquisition costs" — down payment, closing costs, inspection fees, appraisals, and similar expenses directly tied to buying the home.

You have 120 days from the withdrawal to use the money for the home purchase. If you withdraw the money and the deal falls through, you can put it back into an IRA (called a rollover) within 60 days to avoid the tax hit, but only if you haven't already used the money.

Traditional IRA withdrawals: You'll owe income tax

When you withdraw from a traditional IRA, the IRS treats the money as income for that tax year. Even though you're not paying the 10% early withdrawal penalty (thanks to the first-time buyer exception), you still owe federal income tax on the full amount you withdraw.

The amount of tax you owe depends on your overall income that year. If you withdraw $15,000 for a down payment and your other income is $50,000, the IRS will count your total income as $65,000 for tax purposes. This could push you into a higher tax bracket, meaning you'll owe more tax than you might expect.

You won't know the exact tax bill until you file your return, but you can estimate it using your current tax bracket. If you're in the 22% bracket, a $10,000 withdrawal will likely cost you around $2,200 in federal tax, plus any state income tax your state charges. Some people set aside part of the withdrawal to cover the tax bill rather than being surprised at tax time.

Roth IRA withdrawals: Tax-free if you meet the five-year rule

A Roth IRA works differently. The money you contributed to a Roth (called your basis) can be withdrawn anytime without tax or penalty. Only the earnings — the investment gains — are subject to tax and the early withdrawal penalty.

For the first-time homebuyer exception to explore to Roth earnings, you must have held the Roth account for at least five years. If you have, you can withdraw up to $10,000 of earnings tax-free and penalty-free. If you haven't held it for five years, you'll owe income tax and the 10% penalty on the earnings portion, though not on your contributions.

This is why a Roth IRA is often the better choice for a down payment: if you've had the account long enough, the withdrawal is completely tax-free. You get the full $10,000 without any tax bill. If you're young and just opened a Roth, you may not have held it five years yet — in that case, a traditional IRA might be the better option for now.

Withdrawing more than $10,000: The penalty and tax explore

If you need more than $10,000, or if you don't may have access to as a first-time buyer, you can still withdraw from your IRA. But you'll pay both the 10% early withdrawal penalty and income tax on the full amount (for a traditional IRA) or on the earnings portion (for a Roth IRA).

On a $20,000 withdrawal from a traditional IRA, you'd owe 10% ($2,000) in penalty plus income tax on the full $20,000. If you're in the 22% tax bracket, that's another $4,400, for a total of $6,400 in taxes and penalties — meaning you'd only receive $13,600 of the $20,000you withdrew. This is why most financial advisors suggest exploring other down payment sources first if you need more than $10,000.

Some exceptions to the 10% penalty exist beyond the first-time homebuyer rule — for instance, if you're disabled or facing a financial hardship — but these are narrow and require documentation. The first-time homebuyer exception is the most straightforward.

IRA loans: Borrowing from your own account

Some employer-sponsored retirement plans (like a 401(k)) allow you to borrow against your balance rather than withdraw it. This is not the same as an IRA. Most IRAs do not allow loans — you can only withdraw or do a rollover. However, if your employer plan allows it, a loan might be worth considering.

With a loan, you borrow money from your own account and repay it with interest over a set period, usually five years. You don't pay a penalty, and the interest you pay goes back into your own account. The downside is that if you leave your job, you typically must repay the loan within 60 days or it's treated as a withdrawal, triggering taxes and penalties.

If you have access to an employer plan loan, compare the interest rate and repayment terms to the cost of a down payment loan from a bank or credit union. Sometimes borrowing from your retirement account is cheaper; sometimes it's not. The key is that you're not losing money to taxes and penalties the way you would with an IRA withdrawal.

How to actually withdraw from your IRA

Contact your IRA custodian — the bank, brokerage, or financial institution where you hold the account. They will ask you to specify that the withdrawal is for a first-time homebuyer purchase (if that applies to you). Some custodians have a form; others handle it by phone or online.

The custodian will withhold federal income tax from the withdrawal unless you tell them not to. If you're using the first-time homebuyer exception and withdrawing from a Roth, you can request no withholding since you won't owe tax. If you're withdrawing from a traditional IRA, you'll owe tax regardless, so withholding some now can help avoid a large bill at tax time.

The withdrawal typically arrives in your bank account within three to five business days. Keep records of the withdrawal and how you used it — the down payment receipt, closing statement, or other proof that it went toward the home purchase. You'll report the withdrawal on your tax return, and having documentation helps if you're ever audited.

Frequently Asked Questions

What counts as a first-time homebuyer?

You're a first-time buyer if you haven't owned a home in the two years before your purchase. This includes people who have never bought, people who are divorced or widowed, and married couples where neither spouse owned a home in that two-year window. If one spouse owned a home more than two years ago and the other never has, you both still count as first-time buyers for this exception.

Can I withdraw from my spouse's IRA for our down payment?

No. The first-time homebuyer exception applies only to your own IRA. Your spouse can withdraw from their own IRA if they also may have access to as a first-time buyer, but you cannot access their account. If you're married and both have IRAs, you can each withdraw up to $10,000, for a combined $20,000.

What happens if I withdraw the money but don't buy the house?

You can put the money back into an IRA within 60 days (called a rollover) and avoid the tax and penalty. After 60 days, it's treated as a permanent withdrawal and you'll owe tax and penalty. Make sure you understand the 60-day window before you withdraw.

Will withdrawing from my IRA affect my Social Security or other benefits?

IRA withdrawals don't directly affect Social Security, but they do count as income for that tax year, which could affect your tax bracket or trigger other tax consequences. If you receive means-tested benefits (like Medicaid), the withdrawal might affect your may be able to access. Check with a tax professional or benefits counselor before withdrawing.

Is it better to use my IRA or take out a personal loan for the down payment?

It depends on the loan terms and your age. A personal loan charges interest but doesn't reduce your retirement savings. An IRA withdrawal reduces your long-term retirement fund but may have lower total cost if you may have access to for the first-time buyer exception. Run the numbers: compare the interest cost of a loan to the tax cost of the withdrawal, then consider how much you're giving up in retirement growth.