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Saving enough money for a down payment is a struggle for many people. If you have an individual retirement account, or IRA, you may be able to use some of your retirement savings for a down payment on a house, but you should carefully weigh the pros and cons first.

Rules on IRA Withdrawals for Home Purchases
Under most circumstances, you can only withdraw money from an IRA after you have reached the age of 59 1/2. Earlier withdrawals may be taxed, and you may have to pay a 10 percent tax penalty. Exceptions are made for first-time homebuyers.

A “first-time homebuyer” is defined as someone who didn’t have an ownership interest in a primary residence in the previous two years. If you’re married, your spouse must meet the same requirements. If you owned a vacation home in the past two years, you can still use money from your IRA to put a down payment on a primary residence.

If you have a traditional IRA, you can use up to $10,000 to buy, build or rebuild a house. You won’t have to pay a 10 percent penalty, but you will have to pay income taxes.

If you have a Roth IRA, you can withdraw an amount equal to your IRA contributions without paying taxes or fees, since the money was taxed before you made contributions to the retirement account. After you’ve withdrawn a sum equal to your contributions, you can withdraw up to $10,000 in earnings or money converted from another account without having to pay a penalty.

If you’ve been contributing to your Roth IRA for less than five years, you’ll have to pay income taxes on earnings, but not on converted funds. If you’ve had your IRA for five years or more, you won’t have to pay any taxes or penalties.

If you currently own a house, you can use up to $10,000 from your IRA to help your or your spouse’s child, grandchild or parent make a down payment on a first home without paying a tax penalty. You can make multiple withdrawals, but none of them can exceed $10,000.

Is Using IRA Money for a Down Payment a Good Idea?
Retirement savings benefit from years of compounded interest. Withdrawing a large sum of money could jeopardize your long-term savings. This is particularly risky if you haven’t saved much and are nearing retirement age.

Even if you aren’t planning to retire soon, annual IRA contributions are limited. You might not be able to catch up to where you were before you withdrew money for a down payment on a house. Think carefully before tapping into your retirement account to fund a down payment for your home or someone else’s.

This article is intended for informational purposes only and should not be construed as professional advice.