NEW YORK – June 25, 2018 – Question: I've heard that I can withdraw money from my IRA to help pay for my first house. Is this true?
Answer: To be perfectly clear, you can withdraw money from your IRA whenever you want. But if you do it without an IRS-allowed exemption, you'll end up paying a 10 percent early withdrawal penalty.
Fortunately for first-time homebuyers, there is such an exemption. First-time homebuyers can take out as much as $10,000 from their traditional IRA penalty-free, although it will still count as taxable income. And if your spouse also has a traditional IRA, they can take out $10,000 as well.
Furthermore, the homebuyer doesn't necessarily have to be you. You can use the money to help your child, grandchild or parent buy a home as well.
If you have a Roth IRA, you may be able to take out even more. You can always withdraw Roth IRA contributions (but not your earnings) tax- and penalty-free. Plus, you can withdraw up to $10,000 of your earnings under the first-time homebuyer exemption, and if your account has been open for more than five years, the withdrawal will be tax-free.
Also, the IRS has a liberal definition of what a "first-time" homebuyer is. Basically, you must not have owned a principal residence within the last two years.
So even if you're not really a first-timer, you may still qualify.
Copyright 2018, USATODAY.com, USA TODAY, Matthew Frankel, The Motley Fool