You cannot borrow against an IRA to buy a house the way you would borrow from a 401(k). Federal law does not allow IRA loans with scheduled repayments and interest.1Internal Revenue Service. Retirement Plans FAQs Regarding Loans What you can do is take money out. Two paths exist: a 60-day indirect rollover that works like a very short bridge loan, and a permanent withdrawal that qualifies for a first-time homebuyer exception to the 10 percent early withdrawal penalty.
The 60-Day Indirect Rollover: The Closest Thing to a Loan
An indirect rollover lets you pull cash out of your IRA, use it for any purpose, and return the full amount to an eligible retirement account within 60 calendar days.2Office of the Law Revision Counsel. 26 U.S.C. 408 – Individual Retirement Arrangements If every dollar makes it back on time, the IRS treats the whole thing as a tax-free rollover instead of a distribution. A homebuyer might use this to cover a down payment while waiting on the sale of a previous home.
The 60-day clock does not bend. Any amount you fail to return becomes taxable income, potentially taxed at federal rates as high as 37 percent.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 If you are under 59½, that unreturned amount also picks up the 10 percent early withdrawal penalty.4Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts You also only get one indirect rollover across all of your IRAs in any 12-month period.5Internal Revenue Service. Announcement 2014-15 Application of One-Per-Year Limit on IRA Rollovers
The risk with a home purchase is timing. Closings slip. An appraisal issue, a title problem, or slow lender processing can push the closing past day 60, and once that happens the money cannot go back and the whole withdrawal becomes taxable. Because the one-per-year rule blocks a do-over, most buyers keep the 60-day rollover as a backup rather than a plan.
The First-Time Homebuyer Withdrawal
If you intend to spend the money and not put it back, a separate rule waives the 10 percent early withdrawal penalty on up to $10,000 taken from an IRA for a first-time home purchase.4Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts The $10,000 is a lifetime cap, not a per-purchase cap. Once you use it, any future early withdrawal for a home purchase pays the penalty.
If both spouses qualify as first-time homebuyers and each has an IRA, each can withdraw $10,000, for a combined $20,000 penalty-free.
The exception applies to IRAs, including SEP and SIMPLE IRAs. It does not apply to 401(k) plans or other employer-sponsored accounts.6Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions The funds have to be used within 120 days of the distribution, and qualified costs include the purchase price plus settlement, financing, and closing costs.4Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
Waiving the penalty does not waive income tax. A traditional IRA withdrawal is still taxed as ordinary income even when the exception applies, so budget for the tax bill separately.
Who Counts as a First-Time Homebuyer
The label is misleading. You do not need to have never owned a home. You qualify if neither you nor your spouse had an ownership interest in a principal residence during the two years ending on the date you sign a binding purchase contract, or the date construction begins on a new home.7Legal Information Institute. Definition: First-Time Homebuyer From 26 USC 72(t)(8) If you owned a home five years ago but have rented for the past two, you qualify.
The money does not have to go toward your own home either. You can use it for a qualifying purchase by your spouse, child, grandchild, parent, or grandparent, or your spouse’s parent or grandparent. Whoever is buying the home has to meet the two-year test on their own.
How the Tax Bill Depends on the Account Type
Traditional IRA
Every dollar you pull from a traditional IRA is ordinary income in the year you receive it. Even with the penalty waived, you still owe federal (and possibly state) income tax on the full amount. A $10,000 withdrawal can easily cost $2,000 to $3,000 in tax depending on your bracket.
Roth IRA
Roth IRAs follow an ordering rule: contributions come out first, then conversions, then earnings. Because you already paid tax on your contributions, you can withdraw them at any time, at any age, tax-free and penalty-free. No homebuyer exception needed.
The exception starts to matter when you reach into earnings. If your Roth IRA has been open at least five years, up to $10,000 of earnings taken for a first-time home purchase comes out free of both tax and penalty.4Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts If the account is less than five years old, that $10,000 in earnings still avoids the penalty but is subject to income tax. The five-year clock starts on January 1 of the tax year of your first Roth contribution.
SIMPLE and Inherited IRAs
SIMPLE IRAs carry a steeper penalty during your first two years of participation. Early withdrawals in that window face 25 percent instead of 10 percent.8Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules The homebuyer exception still applies, so the first $10,000 for a qualifying purchase comes out penalty-free. Anything above $10,000 during those first two years takes the full 25 percent hit.
If you inherited an IRA from someone other than a spouse and hold it as an inherited IRA, the 10 percent early withdrawal penalty generally does not apply to your distributions, regardless of your age. You do not need the homebuyer exception because there is nothing to waive. Distributions from an inherited traditional IRA are still taxable income. A surviving spouse who rolls an inherited IRA into their own IRA is treated as the owner, so the normal early withdrawal rules and the homebuyer exception apply as if it had always been theirs.
If the Home Purchase Falls Through
If you take a homebuyer distribution and the deal is canceled or delayed, you can put the money back into an IRA within 120 days of the original distribution. The IRS treats the recontribution as a rollover, so no income tax and no early withdrawal penalty on the returned amount.9Internal Revenue Service. Publication 590-B (2025), Distributions From Individual Retirement Arrangements (IRAs) This 120-day window is specific to homebuyer distributions where the purchase or construction did not happen. It is longer than the standard 60-day rollover deadline, and it does not count against the one-rollover-per-year limit.4Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
How to Process the Withdrawal
Contact your IRA custodian or use their online portal to request a distribution. You will pick a one-time or partial withdrawal, enter the dollar amount, and usually indicate the reason so the custodian codes the reporting correctly.
You will also decide how much federal income tax to withhold. The default rate on a nonperiodic IRA distribution is 10 percent. You can pick a higher rate, or elect zero withholding by entering “0” on Form W-4R.10Internal Revenue Service. 2026 Form W-4R Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions Skipping withholding maximizes the cash you have at closing but leaves the full tax bill for filing season. If you submit no W-4R at all, the custodian withholds 10 percent by default.
Funds usually arrive within three to five business days by electronic transfer. A mailed check takes longer. Save the custodian confirmation, your deposit records, and the closing disclosure. That paper trail is what proves the withdrawal went to the home purchase.
Reporting the Withdrawal on Your Taxes
Your custodian will send Form 1099-R after year-end showing the gross distribution in Box 1 and a distribution code in Box 7. An early distribution is typically coded “1” (early distribution, no known exception), so it is on you to claim the homebuyer exception on your return.11Internal Revenue Service. Instructions for Forms 1099-R and 5498
To claim the exception, file Form 5329. Put the distribution amount on Line 1, then enter the excluded amount on Line 2 with exception number 09 for a first-time homebuyer distribution.12Internal Revenue Service. Instructions for Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts Hold onto your purchase contract and settlement statement; those are what you would show the IRS if the exception is questioned.