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My wife and I recently purchased our first home. In order to partially cover the down payment, I withdrew about $18,000 from my Roth IRA (ie its only in my name).

I know the IRS lets you waive the 10% early distribution fee if you are using the funds for a first time home purchase and permits you to withdraw up to $10,000 per individual. They specifically say that you and your spouse can each withdraw $10,000 and combine the two for a total of $20,000.

My question is, is it okay if my wife and I are both withdrawing from my IRA for our first home purchase or is obtaining $20,000 only permitted if I had an IRA and withdrew $10,000 and she had a separate IRA and withdrew $10,000?

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    Have you contributed at least $18,000 to your Roth IRA? If so, you don't need to worry about the "first-time homebuyer" provision; you can take money out of a Roth penalty-free up to the amount that you have put in at anytime.
    – Ben Miller
    Jan 20, 2016 at 17:39
  • Ben, I have not contributed $18k. That withdrawal includes interest/capital gains acrued over time. The account however has been open for over 5 years.
    – Charlie
    Jan 21, 2016 at 0:08

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Roth IRA rules are covered under IRS Publication 590-B. Let's look at the text for the First home exception:

First home. Even if you are under age 59½, you do not have to pay the 10% additional tax on up to $10,000 of distributions you receive to buy, build, or rebuild a first home. To qualify for treatment as a first-time homebuyer distribution, the distribution must meet all the following requirements.

  1. It must be used to pay qualified acquisition costs (defined next) before the close of the 120th day after the day you received it.

  2. It must be used to pay qualified acquisition costs for the main home of a first-time homebuyer (defined below) who is any of the following.

    • Yourself.

    • Your spouse.

    • Your or your spouse's child.

    • Your or your spouse's grandchild.

    • Your or your spouse's parent or other ancestor.

  3. When added to all your prior qualified first-time homebuyer distributions, if any, total qualifying distributions cannot be more than $10,000.

This $10,000 amount is a lifetime limit for each taxpayer's IRA accounts. Therefore, you could take out $10,000 from your IRA, and your wife could take out $10,000 from her IRA, but you cannot take out $20,000 from your IRA, because it would exceed your lifetime limits. The limit is on your account, not on you as a homebuyer. The reason that "spouse" is listed is that you could take out $10,000 from your IRA to help your spouse buy a house, but this would, again, take up the $10,000 lifetime limit.

That having been said, the Roth IRA is unique among retirement vehicles in that you are allowed to take out any amount that you have contributed, penalty-free, for any reason at any time. Therefore, if your total contributions into your Roth IRA has been at least $8,000, then you can count $8,000 as a return of your contributions, and another $10,000 as a qualified distribution under the first-time homebuyer provision to avoid the penalty.

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  • Ben, nice point that the early distribution only applies to amounts beyond the contributions. I had not fully considered that. I also get your point on the lifetime limit. I had read the IRS publication already but the verbiage did not entirely make sense until you just explained it so thank you.
    – Charlie
    Jan 21, 2016 at 22:08

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