IRA first home purchase rules let a qualifying first-time buyer take up to $10,000 in IRA distributions without the usual 10% additional tax on early withdrawals, though regular income tax may still apply depending on the account type and distribution. The IRS “first-time” definition generally uses a two-year lookback for not owning a main home, rather than meaning you’ve literally never owned property. This is tax-sensitive territory, and individual circumstances should be reviewed with a tax professional. Updated August 2026.
Can You Use an IRA for a First Home Purchase?
You can take a distribution from an IRA and use it toward a qualifying first home purchase, but an IRA doesn’t work like a 401(k), where you might borrow against the balance and repay it. With an IRA, you’re taking a permanent distribution, not a loan, which means the funds leave your retirement account for good and regular tax rules apply to the withdrawal.
Who Counts as a First-Time Homebuyer Under IRS Rules?
Under IRS rules, you generally qualify as a first-time homebuyer if you, and your spouse if married, had no ownership interest in a main home during the two years before the new home’s acquisition. That two-year lookback means someone who owned a home years earlier can still qualify, which surprises many readers who assume “first-time” means never having owned property at all.
The $10,000 Lifetime First-Home Exception
The $10,000 figure is a lifetime limit per individual for the additional-tax exception, not an annual allowance. Married spouses may each qualify for their own $10,000 if each independently meets the ownership and use requirements, potentially allowing $20,000 combined toward one qualifying purchase between the two of them.
What Costs Can IRA Funds Cover?
Qualified acquisition costs include the cost of buying, building, or rebuilding a home, along with usual and reasonable settlement, financing, or closing costs. The exception applies specifically to funds used for these purposes tied to a qualifying first home purchase, not general home-related spending after you’ve already moved in.
The 120-Day Timing Rule
Distributed funds generally must go toward qualified acquisition costs before the close of the 120th day after you receive them. IRS guidance addresses situations involving a binding contract or construction start, and separately addresses what happens if a purchase is delayed or canceled; those specific mechanics should be confirmed against current IRS Publication 590-B rather than assumed.
Traditional IRA vs. Roth IRA for a First Home
Tax treatment depends heavily on account type and distribution history, so don’t assume the same result applies to both. The table below is a starting point, not a substitute for reviewing your own situation:
| Factor | Traditional IRA | Roth IRA |
| Contributions withdrawn | Taxed as ordinary income | Generally tax- and penalty-free, since already taxed |
| Earnings withdrawn | Taxed as ordinary income | May be tax-free if the 5-year rule and other conditions are met |
| 10% additional tax | Avoided with the qualifying first-home exception | Applies to earnings unless an exception, including first-home, applies |
| Complexity | Comparatively straightforward | Depends on ordering rules and how long the account has been open |
Roth IRA distributions follow specific ordering rules for contributions, conversions, and earnings, and the five-year holding requirement adds another layer that a Traditional IRA doesn’t have. Don’t assume a Roth withdrawal is automatically tax-free just because it’s a Roth, and see IRS Topic 557 for how the additional-tax exception itself works.
How the Distribution Is Reported
Your IRA custodian generally reports the distribution on Form 1099-R, and you may need Form 5329 to claim the first-home exception to the 10% additional tax when you file. This is general information, not filing instructions; work through the actual forms with a tax professional or current IRS instructions.
Should You Use Retirement Savings for a Down Payment?
Pulling from an IRA has a real opportunity cost: that money stops growing tax-advantaged, and rebuilding retirement savings later is harder than making a bigger down payment now feels difficult. Consider whether you’d still have an adequate emergency reserve afterward, whether the mortgage stays affordable at the resulting loan size, and whether delaying the purchase or building dedicated savings might serve you better than tapping retirement funds by default.
FAQ
Can I use more than $10,000 from my IRA?
You can withdraw more, but only the first $10,000 qualifies for the additional-tax exception tied to a first home purchase. Any amount beyond that lifetime limit is generally subject to the regular 10% additional tax unless another exception applies.
Can both spouses use $10,000 each?
Yes, if each spouse independently meets the first-time homebuyer and ownership requirements. That can allow up to $20,000 combined toward one qualifying purchase, drawn from each spouse’s own IRA.
Does owning a home years ago disqualify me?
Not necessarily. The IRS test generally looks at whether you owned a main home during the two years immediately before the new purchase, not your entire ownership history.
Can IRA funds be used for closing costs?
Yes, usual and reasonable settlement, financing, and closing costs tied to the qualifying purchase generally count as qualified acquisition costs alongside the purchase price itself.
Is a Roth IRA withdrawal automatically tax-free?
No. Roth withdrawals follow ordering rules and a five-year holding requirement, and earnings can still be taxable depending on your specific distribution history, even when the first-home exception applies to the additional tax.
Next Step: Review IRA Information
Before relying on any older material about IRA rules, confirm current contribution limits and account details directly, since figures from years ago are no longer accurate. Review the credit union’s Individual Retirement Accounts information and talk with a tax professional about how these rules apply to your specific situation.
This article is for general educational purposes only and is not tax, legal, investment, or financial advice. IRA tax treatment depends on account type, age, holding period, prior distributions, and individual circumstances. Consult a qualified tax professional before taking a retirement-account distribution for a home purchase.
Reviewed by a retirement and financial-education editor, with tax fact-checking against current IRS guidance as of the August 2026 update.