Roth IRA and house down payment

[genchan]

Is placing the money you plan to use for a home down payment in the future into a Roth IRA a good finaicial strategy?

[mbhunter]

That's a fantastic question. I wish that I had a fantastic answer, but I'll try anyway

If you put the money in the Roth, then I do believe that there are situations where you can take the money out pre-retirement without much ado. College is one time, and I think that home purchasing is another. (Someone correct me if I'm wrong.)

But, once you take it out, you can't put it back in any faster than otherwise allowed. It depends on how close you are to retirement whether this would be a big deal or not. If you're 25, you're forfeiting potentially a lot of tax-free compounding. If you're close to retirement, not quite so much. If you're taking out even as little as $20k that will take several years to put back in.

I guess just run the numbers to see what the effects are.

[VJW]

You have it right, you can withdraw money from an IRA (any kind) towards the purchase of a house. However, there are a couple of limitations:

1) This applies to FIRST TIME home purchases only.

2) The last time I checked the numbers, you were limited to withdrawing $10,000.

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[Bluezy]

...and $10K is not much to put down towards your house. The limit should be raised for first time home buyers.

[terry1156]

Originally Posted by VJW

You have it right, you can withdraw money from an IRA (any kind) towards the purchase of a house. However, there are a couple of limitations:

1) This applies to FIRST TIME home purchases only.

2) The last time I checked the numbers, you were limited to withdrawing $10,000.

Just to clarify, my understanding is that $10,000 <b>in gains</b> that can be withdrawn without penalty or taxes - that is in addition to the pricipal amount that you have placed in.

I believe another restriction is that you can only do this after the account has been opened for 5 years, so if you're planning to buy a house fairly soon and haven't opened Roth IRA yet, it wouldn't ba a good place to put your downpayment money

[jmjj215]

This raises the question of what the roth should be invested in if you are planning on using it for a house downpayment. I certainly wouldn't be putting it in the markets.

[Tree0164]

You can always take out your pretax contributions in a Roth IRA.

In order to take advantage of the tax free withdrawals on your earnings, you must have held it for atleast 5 years and be a first time homebuyer. It is limited to 10,000.