Where would you save your money to build a house downpayment?

[Broken Arrow]

Feel free to chaulk this up to late-night, insomnia-induced, hair-brained scheming on my part, but what do you think about using an IRA for the express purpose of saving for a house?

Please just hear me out first. Someday, I'd like to start up a house fund and save up as big of a downpayment as I can possibly muster. Great.

However, what's the ideal vehicle for said house fund? CD? HIS (High Interest Savings)? They all lose a bit to capital gains. IRAs, on the other hand, doesn't. I mean, sure, I can't take out any interest made in it, but doesn't bother me because that just means more later on for retirement. Also, I am already contributing to a 401k. So, why not use an IRA as a house fund? After all, they're just a tax shelter, right?

What do you folks think? What do think is the ideal vehicle for a house fund?

[sweeps]

I don't think it's a bad idea. But you still have to choose investments for your IRA. How much risk are you willing to take?

[Ima saver]

Sorry, I would stick to a bank with a high rate or cd's!! IRA's are usually in mutual funds, and they need to be left for the long haul!

[Broken Arrow]

Really? You don't think it's a bad idea, Sweeps? So, I'm not the only one that's insane?

Hypothetically speaking, if I were to take this route, the goal then is to preserve the principal for the shorter term more than it is to grow the fund for the long term. In which case, my credit union, for example, offers an IRA that is functionally no different than any other HIS, except it's tax-sheltered.

Alternatively, if I were to choose either CDs or regular HIS, the rates would be fairly similar, minus the tax shelter. After-tax, an IRA should give back better competitive rates, even if I can't touch it until retirement.

I'm just tossing ideas in the air of course. Who knows? In the end, maybe it doesn't matter much either way, depending on what the target deadline ends up being?

[Ima saver]

If you take an IRA out early, don't you have to pay the taxes on it, then?

[Broken Arrow]

Presumably on a Traditional, but not a Roth. Right?

Yeah, maybe I'm just thinking too hard.

[Ima saver]

A roth is taxed already and when you take it out you owe no taxes! A regular IRA gives you a tax break up front, but when you take it out, you must pay taxes on it!!

[sweeps]

No I don't think it's a crazy idea. You said you're already contributing to a 401k, so that's good. You need to save up for a house somewhere, why not put it in a Roth where the earnings can grow tax-free and you can withdraw the principal without penalty.

If you didn't have retirement savings going into your 401k, I would not be so keen on the idea.

[autoxer]

That is part of my plan. Since I don't know when I'll buy a house or how much money I'll need, I feel like it's best to make the maximum contribution to my Roth each year. But I put a portion of it in a money market within the Roth so it is more stable for the short term. If I don't need it, it will continue to grow tax free, and If I do need it, my contributions are available penalty free. Once I am debt free, I'll save more in a HIS to minimize the amount I need to take out of my Roth.

[Ima saver]

do you have two names on here??