I am interested in the idea of using an S&P Index Fund (probably Vanguard's) within a Roth IRA as a savings vehicle for a downpayment on a house.
I have an emergency fund in an FDIC insured savings account and a 401k already, I am just trying to get a little more bang for my buck by using a tax-advantaged account here.
I figure I would be able to save about $6,000 per year, which is the maximum Roth contribution anyway. Since I can withdraw the contributions at any time without penalty, and I can (currently) withdraw the earnings without penalty or tax for this first-time home purchase (providing I meet the 5 year rule, which I probably will), it seems like this is a good idea because I get to avoid taxes on the earnings in this account. If I end up needing the money before 5 years is up then I will either pay income tax on the earnings or just not withdraw them, depending on how the numbers work out.
So is this a good idea? What other things should I consider? I know the prevailing wisdom is to not place any money you might need within 3-5 years in the market, let's say I was willing to take that risk (my down payment fund is currently in the market at this time anyway).