You can take money out of a Roth IRA for a down payment, but only under specific rules that depend on your age and how long you've had the account

A Roth IRA is a retirement savings account where your money grows tax-free. The basic rule is that you cannot touch the money before age 59½ without paying a penalty. However, the IRS allows two exceptions for down payments: the first-time homebuyer rule and the account-age rule. Both have strict requirements, and mixing them up can cost you thousands in taxes and penalties.

The most common path is the first-time homebuyer exception. If you have never owned a home, you can withdraw up to $10,000 from your Roth IRA toward a down payment, closing costs, or other home-buying expenses — without the usual 10% early withdrawal penalty. You still pay income tax on any earnings you withdraw, but not on the contributions (the money you put in yourself). This $10,000 limit is per person, per lifetime, so if you are married, your spouse can also withdraw $10,000 from their own Roth IRA.

The second path is the five-year rule. If your Roth IRA has been open for at least five tax years, you can withdraw your contributions (not earnings) at any time, for any reason, without penalty or tax. This is separate from the first-time homebuyer rule. You could use this to withdraw $50,000 in contributions if you have that much saved, as long as the account has existed for five years. The catch: you can only withdraw the contributions you made yourself, not the growth.

Key Takeaways

  • The first-time homebuyer exception lets you withdraw up to $10,000 from your Roth IRA without the early withdrawal penalty, though you pay income tax on any earnings you withdraw.
  • You must have never owned a home to use the first-time homebuyer rule, and the $10,000 limit applies per person per lifetime.
  • If your Roth IRA has been open for five tax years or longer, you can withdraw your contributions at any time without penalty or tax, regardless of your age or homebuyer status.
  • Withdrawing earnings before age 59½ triggers both income tax and a 10% penalty, even under the first-time homebuyer exception.
  • You have 120 days from withdrawal to use the money for down payment expenses, or the IRS may treat it differently for tax purposes.

What counts as "first-time homebuyer" for the IRS

The IRS definition of first-time homebuyer is broader than you might think. You may have access to if you have not owned a home during the two-year period before you buy. This means you could have owned a home ten years ago, gone through a divorce, and still be considered a first-time buyer now. You do not need to be a first-time buyer in the literal sense.

The rule also covers buying a home for a spouse, parent, or child — not just yourself. If your parents are buying their first home in decades and you want to help with the down payment, you can withdraw $10,000 from your Roth IRA to give them, as long as you meet the first-time buyer definition.

The difference between contributions and earnings

Your Roth IRA contains two types of money: contributions (what you deposited) and earnings (what your investments made). This distinction matters enormously when you withdraw early.

Contributions come out tax-free and penalty-free at any time. If you put $5,000 per year into a Roth IRA for ten years, you have $50,000 in contributions. You can withdraw all of it without owing the IRS anything, as long as your account has been open for five tax years. Earnings are different. If your $50,000 in contributions grew to $65,000, that $15,000 in growth is earnings. Withdrawing earnings before age 59½ costs you income tax plus a 10% penalty — even under the first-time homebuyer exception.

Your Roth IRA statement will show you how much is contributions and how much is earnings. If you are unsure, contact your bank or brokerage before you withdraw anything.

How the first-time homebuyer exception actually works

To use the $10,000 first-time homebuyer exception, you request a withdrawal from your Roth IRA provider (your bank, brokerage, or investment company). You do not need to file special paperwork with the IRS or prove you are a first-time buyer at the time of withdrawal — the burden is on you to keep records showing you used the money for down payment expenses.

The IRS expects you to use the withdrawn money within 120 days for may have access to expenses: the down payment itself, closing costs, inspection fees, appraisal fees, or other costs directly tied to buying the home. If you withdraw $10,000 but only spend $7,000 on the down payment and keep the rest, the IRS may treat the unused portion as a regular early withdrawal, which means you owe income tax and the 10% penalty on it.

Keep receipts and closing documents. If the IRS ever questions the withdrawal, you need proof that the money went toward home-buying expenses. This is rare, but it happens, and having documentation protects you.

When the five-year rule gives you more flexibility

If your Roth IRA has been open for five tax years, the five-year rule may give you more money than the first-time homebuyer exception. You can withdraw all your contributions, not just $10,000. If you have been saving $7,000 per year for eight years, you have $56,000 in contributions. You can withdraw all of it without penalty or tax, regardless of whether you are a first-time buyer or how old you are.

The five-year clock starts on January 1 of the year you open the account. If you opened your Roth IRA on December 15, 2019, your five-year period ends on January 1, 2025. You can withdraw contributions starting that date. The five-year rule is separate from the first-time homebuyer rule, so you could use both in the same year if you wanted — though that would mean withdrawing more than $10,000 total.

The downside: you lose the growth on the money you withdraw. If you withdraw $56,000 in contributions but your account has grown to $75,000, you leave $19,000 in earnings behind. That money stays in the account and continues to grow tax-free, but you do not get to use it for the down payment.

Taxes and penalties if you withdraw earnings early

Withdrawing earnings from a Roth IRA before age 59½ costs you money, even under the first-time homebuyer exception. You owe income tax on the earnings at your regular tax rate, plus a 10% early withdrawal penalty. If you are in the 22% tax bracket and you withdraw $5,000 in earnings, you owe $1,100 in income tax plus $500 in penalty — a total of $1,600 on a $5,000 withdrawal.

The first-time homebuyer exception waives the 10% penalty but not the income tax. This is a key difference. You still have to pay tax on earnings, which is why it matters so much to know how much of your withdrawal is contributions versus earnings.

There is one exception to this rule: if you are disabled or facing a medical hardship, you may be able to withdraw earnings penalty-free (though you still owe income tax). These situations have strict definitions, so talk to a tax professional if you think you may have access to.

Alternatives if your Roth IRA does not meet the rules

If your Roth IRA is less than five years old and you are not a first-time homebuyer, you cannot use it for a down payment without paying taxes and penalties on the earnings. In that case, you have other options. A traditional IRA has the same first-time homebuyer exception ($10,000 lifetime), but the money is taxed as income when you withdraw it. A 401(k) may allow you to borrow against your balance rather than withdraw it, which means you repay yourself with interest instead of losing the money to taxes.

You could also delay your home purchase until your Roth IRA has been open for five years, or save the down payment in a regular savings account instead. Neither is ideal, but both avoid the tax hit of an early withdrawal.

Frequently Asked Questions

Can I withdraw from a Roth IRA I inherited from someone else?

No. Inherited Roth IRAs have different rules, and you cannot use the first-time homebuyer exception on inherited money. You can withdraw contributions from an inherited Roth IRA if the original owner had the account open for five tax years, but earnings are taxed and penalized. Talk to a tax professional about inherited accounts — the rules are complex.

What if I withdraw the money but do not buy a house?

If you withdraw under the first-time homebuyer exception but do not use the money for a down payment, the IRS treats it as a regular early withdrawal. You owe income tax and the 10% penalty on any earnings. You cannot put the money back into the Roth IRA to undo the withdrawal. This is why it is important to be certain about your home purchase before you withdraw.

Do I have to report the withdrawal to the IRS?

Your Roth IRA provider reports the withdrawal to the IRS on Form 5498. You report it on your tax return. If you claim the first-time homebuyer exception, you do not file special paperwork, but you should keep records showing you used the money for home-buying expenses. The IRS rarely audits Roth withdrawals, but having documentation protects you if they do.

Can my spouse and I each withdraw $10,000 for the same house?

Yes. Each of you can withdraw up to $10,000 from your own Roth IRA under the first-time homebuyer exception, for a total of $20,000 toward one down payment. The $10,000 limit is per person, per lifetime, so you each get your own limit.