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I would like to withdraw money from both a Roth IRA and a Rollover IRA to help with a first-time home purchase. I have never withdrawn money for this purpose before.

I have $5,500 in a Roth IRA that was opened in 2009. This is all earnings, including recent earnings. (All my contributions were withdrawn a few years ago during a financial emergency. I have never converted into this account.) I also have a significant amount of money in a Rollover IRA.

My plan right now is to withdraw all $5,500 from the Roth, penalty- and tax-free, and $4,500 from the Rollover, penalty-free. This will give me $10,000 (less any withholding) to put towards the purchase.

Aside from the dubious move of stealing from my retirement, am I missing anything? I suppose my biggest question is regarding Roth earnings: if my account grew $100 last month, do I have to wait five years to withdraw that $100 for a first-time home purchase? Do I have to pay taxes on that $100? Thanks in advance.

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  • How old are you? How much did you withdrew the first time?
    – ventsyv
    Commented Oct 9, 2017 at 17:28
  • @ventsyv Under 59 1/2, and I withdrew the original $5,000 contribution that I made in 2009.
    – mwp
    Commented Oct 9, 2017 at 17:35

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You do not have to wait 5 years from when a particular dollar was earned to withdraw it. To be a qualified distribution from a Roth IRA, A) the Roth IRA must have been opened for 5 years (which yours was), and B) you must be 59.5 years old, or meet one of the other exceptions (and $10,000 for a first-time home purchase is one of the exceptions). Since it is a qualified distribution, there is no tax or penalty.

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Don't underestimate the impact of "stealing from [your] retirement". If your retirement account growth averages 9%, you're effectively "borrowing" from the account at 9% interest.

Look at how long it will take you to pay back the retirement account, and calculate how much "interest" you're paying on that money at 9%.

If it takes you 3 years to pay yourself back, you will have lost over $3,000 in opportunity cost, compared to $1,300 in interest on a 4% loan.

If you don't pay yourself back (because of extra expenses that come with home ownership), over 35 years, the opportunity cost of the 10,000 you withdrew is over $230,000.

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  • I hear you and I appreciate the warning. It's not ideal. There's a larger calculation in play here with 1. an expensive rent that we pay today, 2. a baby on the way with no affordable daycare options nearby, and 3. a temporarily depressed annual income due to a business opportunity I'm pursuing. The plan is to 1. buy somewhere cheaper 2. near an affordable daycare option and 3. get caught up on retirement when my job situation changes (whether my business succeeds or fails) in a year or two.
    – mwp
    Commented Oct 9, 2017 at 19:41
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    Why not rent somewhere cheaper near daycare instead? It sounds like it's not a great time to buy a house right now with everything going on. I know that wasn't what you were asking; I just hate to see you make one bad financial decision to support another.
    – D Stanley
    Commented Oct 9, 2017 at 20:48
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Answering my own questions here after doing a bit more reading:

If my account grew $100 last month, do I have to wait five years to withdraw that $100 for a first-time home purchase?

No, as long as the account is at least five years old.

Do I have to pay taxes on that $100?

No.

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