 You can't borrow from an IRA
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 Dear
Dr. Don,
I am looking to purchase my first home in the near future. In order
to finance a down payment I'm planning on borrowing money from my
Roth IRA. I have had the account for two years. Is there a minimum
time I must have the account open before I can borrow money? Also,
are there any restrictions to the amount I can borrow or when the
money would have to be repaid?
Thanks,
-- Mike Minimum
 Dear
Mike,
You can't borrow money from your Roth IRA account. There aren't
any lending provisions in IRA accounts, whether they're Roth IRA
or traditional IRA accounts.
There is a way to borrow the money for 60 days in
the process of transferring the money from the existing account
to a new account. When you move the money from one IRA account
to another, you have 60 days to fund the new account from the proceeds
of the old account. Since financing a down payment isn't a
60-day proposition, this provision of the tax code isn't useful
in your situation and is not recommended.
Taking a distribution from the account for your down
payment, instead of a loan, might make sense. The Roth IRA has a
first-time-home-buyer provision, allowing you to avoid the early
withdrawal 10-percent penalty tax on the distribution, but the age
of the account is also a consideration. If the account is only
two years old, and you've only been contributing to a Roth IRA over
that two-year time period, the contributions don't meet the age
requirement for an early distribution for the first-time-home-buyer
provisions.
An IRS flowchart
shows the requirements for a distribution to be a qualified distribution
and thereby avoid the 10-percent penalty tax on an early distribution.
IRS
Publication
590, Individual Retirement Arrangements, has more information on the taxation
of Roth distributions. Key in the discussion is that Roth contributions are
made with after-tax dollars, so it's the penalty tax on nonqualified distributions
and potential taxation of the investment earnings in the account that are relevant. If
you want to pursue tapping your Roth IRA for a down payment on a home, you should
talk to a professional tax adviser about the taxes due on the distribution out
of the account.
To ask a question of Dr. Don, go to the "Ask
the Experts" page and select one of these topics: "financing
a home," "saving & investing" or "money."
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