For most people, buying a home is one of the biggest investments they’ll ever make. And if you’re a first-time homebuyer, coming up with a down payment is likely to be one of the biggest challenges you face. After all, the median price of a U.S. home as of June 2023 was $410,200, according to the National Association of Realtors. A typical 20 percent down payment on that amount is more than $82,000 — a daunting sum to have to come up with all at once.

If you have a Roth IRA retirement account, though, it can be used as a source of funds for that all-important part of the homebuying process. Here’s what you need to know.

Using a Roth IRA to buy a home

A Roth IRA is a retirement account funded with after-tax dollars, from which people usually plan to withdraw funds in retirement, or at least after the age of 59½. The IRS allows you to withdraw your contributions anytime, since you’ve already paid taxes on that money. If you want to withdraw earnings before the age of 59½, though, you must have had your Roth IRA account for five years in order to avoid income taxes and a 10 percent additional penalty. This is known as the five-year rule.

However, IRS rules do allow you to withdraw up to $10,000 of Roth IRA earnings to help with the purchase (or build) of a first home. (Note: Only a first home.) If your Roth IRA is less than five years old, you can still withdraw up to $10,000 in earnings for a home purchase without the penalty, but you will pay income taxes on the amount. This $10,000 exclusion is a lifetime limit, so you can’t do it more than once.

According to IRS rules, a first-time homebuyer is not just someone who has never owned a house before. You also count as a first-time buyer if you haven’t owned a primary residence for at least two years. (If you are married, your spouse must also meet this requirement.)

“If you think you’re going to use money from your Roth to buy your home, understand that you can only borrow from your contributions plus up to $10,000 worth of earnings,” says Derek Sall, founder of the website Life and My Finances. “You might have $100,000 in your account, but if you contributed just $20,000, you can only withdraw that $20,000 plus $10,000 of earnings, for a total of $30,000. Further, you have to use those funds within 120 days.”

Should you use a Roth IRA to buy a home?

As with so many things, just because you can use money from your Roth IRA to buy a home, it doesn’t necessarily mean you should.

Remember why you opened your Roth IRA in the first place — as part of your retirement plan. Removing funds from your retirement savings early means less money available to you when you retire. Carefully consider the pros and cons of using funds from a Roth IRA to buy a home, including the following:


  • It’s tax-free: You can withdraw your contributions from a Roth IRA tax-free at any time, for any reason. If you’ve had your Roth IRA for five years, you can also withdraw up to $10,000 in earnings tax-free for the purpose of buying your first home.
  • There are no penalties: Even if your Roth IRA is less than five years old, you can still withdraw up to $10,000 in earnings to buy a first home with no penalty — although you will pay taxes on those earnings.
  • You can borrow less: As a first-time homebuyer trying to scrape together the highest down payment you can, a Roth IRA’s flexible rules can help increase the amount you’re able to put down. That means you don’t have to borrow as much for your home loan, which in turn means lower monthly payments.


  • You lose retirement funds: Any funds you withdraw from your retirement savings for a reason other than retirement means less money when you need it down the road.
  • You incur “opportunity cost”: Depending on how long you’ve had your Roth IRA, you may lose significant compound interest when you withdraw earnings. Even if you only withdraw contributions, future compound interest will be less.
  • It may be a warning sign: Using your Roth IRA to fund a home may be a signal that you are buying too much house. If you need to dig into retirement savings to make the purchase, you might want to consider a less expensive home.

Roth vs. traditional IRAs

Traditional IRAs also have a home-buying exclusion, but using a Roth IRA to fund a first-home purchase is better for two reasons. One, with a traditional IRA your original contributions are made pre-tax, which means you will pay taxes on all money you withdraw. And two, a traditional IRA has a hard $10,000 limit on withdrawals from a for a home purchase. With a Roth IRA, withdrawal of after-tax contributions is unlimited; only earnings withdrawals are capped at $10,000.

Alternatives for a down payment

Many experts advise exploring all other options before dipping into retirement savings to buy a house. “The first alternative is to buy less house,” says Sall. Other alternatives can include:

  • Family loans or gifts: If your family is in a position to gift or loan you money for a down payment, it can go a long way toward making you a homeowner sooner. It may be uncomfortable, but it’s worth considering.
  • High-yield savings accounts: As you save up for a down payment, put that nest egg into a high-yield savings account so that it makes as much money for you as possible.
  • Selling non-retirement investments: Rather than dipping into retirement funds, look into selling stocks or other investments not earmarked for your golden years.
  • First-time homebuyer programs. You might be surprised at the number of first-time homebuyer programs that are available at the federal, state, and local levels to help hopeful buyers cover closing costs and down payment expenses. Your real estate agent can help you find out if you qualify for any.
  • Low-down payment loans: Not all mortgages require a full 20 percent down payment. For example, fixed-rate conventional loans can be had for as little as 3 percent down, though you’ll need to pay for private mortgage insurance along with your monthly payments. And if you’re a qualified member or former member of the military, VA loans may require no down payment at all.

Find a real estate agent to help

A knowledgeable agent in your area will understand the local market inside-out and can help you find a home that fits both your needs and your budget. Buyer’s agents also have insight into programs for first-time homebuyers and other kinds of help you may not know about. Additionally, their negotiating skills can be invaluable in a housing market where sellers have the edge. Get recommendations from family and friends and look online for local agents who work in your desired area — and interview several candidates before deciding on the best one for you.


  • A Roth IRA can be helpful for first-time homebuyers, or buyers who have not owned a primary residence for at least two years. It allows you tax-free access to additional funds to put toward a down payment, which results in lower monthly payments. However, keep in mind that if you use these funds to put toward a house, they will not be there for you in retirement anymore.
  • Though it is possible, experts typically do not recommend using your Roth IRA — or any retirement account — to buy a house. That money is earmarked for retirement for a reason, and if you use it for a different purpose, it won’t be there for you once you retire. Look into alternative sources of funding, such as selling off other investments, first before dipping into your retirement savings.
  • You can withdraw your contributions from a Roth IRA anytime. If you are a first-time homebuyer (or a buyer who has not owned a primary residence for at least two years), you can also withdraw up to $10,000 in earnings to put toward buying or building a home.