For many people, buying a house will be the largest financial investment they ever make. However, coming up with the funds for the down payment can be a challenge. Home shoppers may be surprised to learn that their IRA can help cover the expense. Below is a quick guide to how you can do this.

Buying a House With an IRA

An IRA is set up to help you save for retirement. If you make withdrawals before the age of 59½, the Internal Revenue Service (IRS) will assess a 10% penalty on the amount and you’ll have to pay taxes on the distribution. However, these rules change if you plan to use an IRA for a home’s down payment.

You can first submit a withdrawal form to the financial institution that manages your IRA. Be sure to indicate that the distribution will be used towards the down payment on a house. Although the IRS will not assess any taxes or penalties for an early withdrawal if the money is used for the down payment, if the funds are not paid within the 120-day time frame, you will be responsible for paying the money back. 

IRA Exemptions That Apply to Home Buyers

To make tax and penalty-free IRA withdrawals for a down payment, there are several mandatory conditions.

First, you must be a first-time homebuyer. The IRS defines this designation as someone who hasn’t owned a house during the previous two years before the IRA withdrawal.

In addition, you can withdraw up to $10,000 to purchase a home, build one from scratch or rebuild an existing house that has been damaged. This is the maximum allowed, and it’s only permitted once in your lifetime. While the IRS won’t charge you the 10% early withdrawal penalty, you’re still responsible for paying taxes on the amount withdrawn. 

Armstrong County Building & Loan Association is ready to help you on your path to home ownership. Based in Ford City, PA the community lender offers both IRAs and loans with competitive rates and terms. All decisions are made in-house, not from an out-of-state call center. To learn more about home financing options, call (724) 763-7137. You can get additional information online.