Roth IRAs also can be used for other purposes, including funding the purchase of a first home. Learn what the IRS considers a first home, how to tap your Roth IRA, and what you should consider before you do so. 

Can You Use a Roth IRA To Buy a House?

You can withdraw your contributions at any time for any reason, including the purchase of a home. Additionally, even if you are not age 59 ½, you can withdraw up to $10,000 of your Roth IRA account earnings penalty-free if you qualify as a first-time homebuyer. If you haven’t owned a home for at least two years, you qualify. For married couples, both spouses have to qualify.

Rules for Roth IRA Withdrawals

Contributions

You can withdraw your contributions—but not earnings—anytime without tax or penalty. Roth IRAs are designed to follow a “first in, first out” model. All distributions are treated as a contribution until withdrawn.  For example, if you had contributed $5,000 per year for five years, you could withdraw up to $25,000 in Year 6 tax- and penalty-free. Rollover money from other plans is considered to be a contribution.

Qualified Withdrawals Are Tax-Free

While contributions can be withdrawn tax- and penalty-free at any time, earnings can’t. As long as the Roth account is at least 5 years old and you are 59 ½ or older, any withdrawals from a Roth account are considered qualified distributions. Withdrawals that are qualified distributions are tax-free, including earnings. 

Early Withdrawal To Purchase A New Home

If you are under age 59½, you can withdraw up to $10,000 of earnings from your Roth IRA penalty-free (but with tax implications) to buy a first home—it’s defined as such if you haven’t owned a home in the last two years. The money has to be used within 120 days to pay for “qualified acquisition costs,” which include:

Cost of buying, building or rebuilding a homeSettlement, financing, or other closing costs

Here’s an example of how a withdrawal for a new home might work: Roth IRA account balance: $35,000 Contributions: $25,000 Earnings: $10,000 You could withdraw up to $25,000 tax- and penalty-free. Furthermore, if you qualify as a first-time homebuyer, you could withdraw the next $10,000 penalty-free, but not tax-free.  

Should You Withdraw From Your Roth IRA To Buy a House?

Drawing on your retirement savings is a major decision, so here are some points to consider.

Are You Meeting Your Retirement Savings Goals?

Taking money out of your Roth IRA will set your plan for retirement savings back. How long depends on how much you have saved.  Over time, that loss could be significant. For example, if you’re 35 years old, $10,000 accumulating at 6% interest for the next 30 years equals $57,435. 

Investing in Your Home vs. Other Investments

The average increase in the median price of a home has averaged 6.37% over the last 10 years. Meanwhile, the stock market, as measured by the Standard & Poor’s 500 index, has averaged 16.98% growth over the same 10 years.

Mortgage Interest vs. Investment Returns

With few exceptions, stock market returns in recent decades have been higher than mortgage rates. Generally, you would be better off borrowing the money, instead of withdrawing it from your Roth IRA and letting your retirement savings grow at a rate of return potentially higher than the interest rate you pay on your mortgage.

Private Mortgage Insurance

A down payment of 20% or more eliminates the burden of private mortgage insurance (PMI), which can cost anywhere from 0.30% to 0.70% of your mortgage balance each year. For example, if your mortgage is $300,000, your PMI cost would range from $900 to $2,100 annually if you can’t make a 20% down payment. Will your withdrawal be enough to cover the 20%? If so, how much will you be saving over time by avoiding PMI?

The Bottom Line

One of the advantages of a Roth IRA is flexibility. Unlike other types of retirement plans, once you reach age 59 ½, you can withdraw your contributions without tax or penalties at any time you’d like for any reason. For a younger person, the $10,000 penalty-free exception to purchase a first home provides an additional resource for a down payment or other homebuying expenses. But tapping into your retirement savings for any reason can have real consequences down the road. Be sure to look at all of your financial options before you make a decision about applying Roth funds to a home purchase. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!