Rules for dipping into IRAs for down payment on a house.

[Guest Lyric]

I have two IRAs, a traditional (rollover on the basis of a QDRO), and a Roth. I'm currently trying to assemble the down payment for a first time house purchase.

What are the rules governing borrowing from IRAs under the "First-time Homebuyer Affordability Act"? Would I owe interest, or just the principal? Are there any timeframes within which the funds need to be replaced?

I believe that for Roths it's a qualified distribution rather than a loan, but I need confirmation of this.

And which would be more advantageous to withdraw funds from, the rollover IRA, or the Roth?

Thank you for your assistance.

[John G]

You do not pay a 10% tax penalty if you are under 59 1/2 and are a first-time buyer of a home. The max you can pull out of an IRA is $10,000. Your spouse may also pull out $10,000 from their IRAs for this purpose. Both you and your spouse must meet the first-time buyer rules. See IRS Pub 590 for more restrictions.

You are not borrowing from your IRA but taking a dispursement.

I am not a big fan of this option. The total amount you can use is limited and reduces the effectiveness of your retirement tax shelter. You might want to consider seeking a loan from other family members or waiting a little longer before purchasing a home. Some communitities have special incentives and mortgages for first-time home owners that are worth investigating.

[Guest Lyric]

Thank you John.

I'm not planning to do this (and may not need to anyway). I just wanted to know what the situation would be if I had to dip into one of my IRAs as a last resort.