First Time Buyer Exemption Info

Traditional IRA

First time homebuyer expenses up to $10,000.00 (lifetime limit) for the IRA owner, their spouse, children, or grandchildren are not subject to the 10 % penalty. A first time homebuyer is one that had no ownership interest in a principal residence during the two-year period that ended on the date of the contract of the new primary residence.

You will pay taxes on the money withdrawn from the traditional IRA at your current tax rate.

Roth IRA

The Roth IRA rules are different from the traditional IRA. You may take $10,000.00 out for your first home, as long as you've had your Roth IRA account for five years. This means you can take out your retirement money without the 10% penalty and because Roth earnings are tax-free, you'll have no IRS bill.

If, however, your Roth IRA is less than 5 years old, the withdrawal is classified as an early distribution. A Roth holder can use the first time exemption to avoid the 10% penalty, but might owe taxes on any earning that are withdrawn.

You can reduce the tax burden by first withdrawing the already-taxed contribution.

401 (k)

The 401(k) plans are unique in allowing limited access to savings before age 59 1/2. One option is taking a loan from yourself! It is legal to take a loan from your 401(k) before age 59 1/2 for various reasons including the purchase of a house. When a loan is obtained, you must pay the loan back with regular payments (these can be set up as payroll deductions) but you are, in effect, paying yourself back both the principal and the interest, not a financial institution.

INFORMATION DEEMED RELIABLE, BUT NOT GUARANTEED.