My wife & I are 28 years old and are looking to purchase our first home in the next 1-3 years. Our financial situation looks something like this:
- 24% combined gross annual income in low interest student loans (half at 2.62%, half at 3.12%)
- Our 403-B is currently worth 24% of our FY2010 combined gross annual income
- We have about 3 months of salary is set aside in a 1% FDIC insured savings account for a rainy day
- We are growing a small pool of money to ideally put 20% down on a new home in the next 1-3 years
My employer-provided 403-b company offers a Roth IRA with one fund that guarantees a 3% return. Should I start a Roth IRA today (contributing the maximum per year to the guaranteed 3% fund) with intentions of withdrawing the $10,000 ($20,000 joint) maximum of contributions towards the down-payment of our first home?
It's unclear if we would incur a 10% tax on withdrawals, since Roth IRA would certainly be less than 5 years old and we are younger than 59.5 years old... Is there an exception for first time homebuyers for the 5-year/10% penalty?
If we would be charged a 10% early withdraw penalty, what should we do with our downpayment money that we're saving? Should we bother setting extra money aside in an IRA, even if it means it will take longer to purchase our first home?
BankRate.com is showing 1-year CDs with up to 1.55% APY. That's nearly half of what I could earn with the 3% guaranteed fund! It seems to me deciding between the 3% guaranteed fund and a 1.55% CD depends on tax penalties for early withdrawal. Are Roth IRAs charged a 10% penalty for withdrawing up to $10,000 ($20,000 joint) for first-time home buyers on IRAs less than 5 years old?