Question: My husband and I would like to help our son make a down payment on his first home, and we're thinking of tapping our IRAs, but we're not 59½ yet, so we’re worried about incurring a penalty. What are the rules for withdrawing money from an IRA to buy a house?
Answer: The rules are different for traditional IRAs and Roth IRAs. With a Roth, you can withdraw contributions for any reason at any time without taxes or penalties. And you and your husband can each take up to $10,000 in earnings from your Roth IRAs for a first-time home purchase without a 10% early-withdrawal penalty. If you’ve had your Roths for at least a five-year period (five calendar years, counting the year you made the first contributions), the earnings are tax-free, too.
You can generally borrow up to half of your 401(k) balance, up to a maximum of $50,000, for any reason without taxes or penalties. The interest you pay on the loan (typically the prime rate plus one or two percentage points) goes back into your account. Most loans from 401(k)s must be paid back within five years, but your employer may give you up to 15 years to repay a 401(k) loan to buy a home for yourself. However, you generally have just 60 or 90 days to repay the loan if you leave or lose your job; if you don’t repay the loan within that time and you’re not at least 55 by the end of the year you leave your job, the loan will be considered a withdrawal subject to taxes, and you’ll also have to pay a 10% early-withdrawal penalty.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
-
Stock Market Today: Stocks Close Mixed Amid War Angst, Nvidia AnxietyMarkets went into risk-off mode amid rising geopolitical tensions and high anxiety ahead of bellwether Nvidia's earnings report.
-
What the Comcast Cable Spinoff Means for InvestorsComcast has announced plans to spin off select cable networks and digital assets into a separate publicly traded company. Here's what you need to know.
-
Credit Report Error? They All Mattercredit & debt Don't dismiss a minor error. It could be the sign of something more serious.
-
Insurance for a Learning Driverinsurance Adding a teen driver to your plan will raise premiums, but there are things you can do to help reduce them.
-
Getting Out of an RMD Penalty
retirement When your brokerage firm miscalculates your required minimum distributions, you have recourse.
-
529 Plans Aren’t Just for Kids529 Plans You don’t have to be college-age to use the money tax-free, but there are stipulations.
-
When to Transfer Ownership of a Custodial Accountsavings Before your child turns 18, you should check with your broker about the account's age of majority and termination.
-
Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
-
When It Pays to Buy Travel Insurance
Travel Investing in travel insurance can help recover some costs when your vacation gets ruined by a natural disaster, medical emergency or other catastrophe.
-
It’s Not Too Late to Boost Retirement Savings for 2018
retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
