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Question:


Should I use my IRA for a down payment to purchase my first home? The property is absolutely amazing.
-LyricRachelle


Answer:


It’s not a great idea. Your IRA – individual retirement account – is there to help pay retirement expenses when the time comes, not to buy a house or any other absolutely amazing thing that should come along in the years between now and then. If you deplete your account for current purchases, you’ll have less to live on when you need it later in life. That being said, there are worse things to spend your retirement money on. You need a place to live, and if you buy one fairly early in life you may be able to pay off the mortgage by the time you retire. That means that your pension fund – IRA, 401(k), Social Security and whatever other savings you may have accumulated over the years – will not have to stretch as far.

They recognize that in Washington, so the 10 percent penalty that the Internal Revenue Service assesses on early withdrawals from IRAs is waived if the money is used for a down payment on a home and you haven’t owned one in the last two years. But keep in mind that if your IRA is the traditional, tax-deferred type and not a Roth, any amount you take out will be treated as ordinary income and subject to federal and state taxes. So you should explore other avenues for scrounging up the down payment, such as a loan from a relative or a mortgage guaranteed by the Federal Housing Administration, which requires a very small down payment. If those aren’t options and the home you’re looking at is really that amazing, then make the IRA withdrawal, but try to replenish the account by making maximum annual contributions as soon as you can.

-Conrad de Aenlle



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