Closing an IRA or Roth IRA 1-3 years after opening the account to buy a first house.

[Guest ginarose4]

I am trying to raise enough money for a down payment on a house that I want to buy. I started investing in a Traditional IRA account 3 years ago and opened a Roth IRA one year ago. I am 41 years old. If I wanted to close these accounts now to use this money for the purchase of a first home, would I be able to close them and receive my money? If I can, would there be a penalty? If anyone can answer these questions, I'd appreciate it. Thanks.

[Lame Duck]

Money from either a Roth or traditional IRA can be removed at any time. However, it may be subject to a 10% penalty if the distribution occurs prior to age 59 1/2. There are certain exceptions to the 10% penalty, one of which is a first time home buyer acquiring a principal residence. Based on your question, you appear to meet the requirements for the exception and would not incur the 10% penalty.

Distributions from a Roth IRA that have not been held for 5 years are considered to be non-qualified distributions and would be subject to the 10% penalty unless they meet one of the exceptions. First time home buyer is an exception to the penalty. However, your contributions to the Roth have already been taxed and will be returned to you, tax free. If you can do so, it would be advisable to leave the earnings in the Roth so they will become eligible for tax free distributions. The removal of your principal contributions will not affect the tax free potential of the earnings.

[WDIK]

This thread and other related threads in the "IRAs and Roth IRAs" forum give additional useful information.