Can I Use My Roth IRA to Buy a House? The $10,000 Exception

You can use a Roth IRA to buy a house, and the rules are friendlier than most retirement accounts allow. Your original contributions come out at any time, for any reason, with no tax and no penalty. On top of that, the IRS lets you pull up to $10,000 in earnings penalty-free for a first home purchase if you meet a few specific conditions. The trick is knowing which layer of money you’re actually tapping, because the rules change sharply once you move past your contributions.

Contributions Come Out First, and They Come Out Clean

The IRS requires Roth IRA withdrawals to leave the account in a set order: contributions first, then conversion and rollover amounts (oldest first), then earnings.¹ That ordering is what makes Roth IRAs so flexible for a home purchase. You already paid tax on the money you contributed, so it comes back out free and clear regardless of your age, how long the account has been open, or what you spend it on.

Before you request anything, confirm your total lifetime contributions with your custodian. That figure sits on your annual Form 5498 statements. If your contributions alone cover what you need for the down payment, you can stop reading here. None of the age limits, five-year rules, or homebuyer exceptions apply to you.

For 2026, the annual contribution limit is $7,500, or $8,600 if you’re 50 or older, so someone who has been contributing steadily for years may have a meaningful cushion available before earnings enter the picture.²

The $10,000 First-Time Homebuyer Exception on Earnings

Once contributions are exhausted, earnings normally trigger a 10% early withdrawal penalty if you’re under 59½. The first-time homebuyer exception waives that penalty on up to $10,000 in earnings over your lifetime.³ That $10,000 cap is cumulative across every IRA you own, including traditional IRAs. If you already used $4,000 of it years ago, only $6,000 remains.

Spouses each get their own $10,000 if they each own an IRA and each qualify, so a married couple can potentially free up $20,000 combined.⁴ Any earnings you take out beyond the exception face both ordinary income tax and the 10% penalty.

Who Counts as a First-Time Buyer

The IRS definition is broader than the phrase suggests. You qualify if you and your spouse haven’t owned a principal residence during the two-year period before you acquire the new home.³ Someone who sold their house three years ago and has been renting since counts.

The home doesn’t have to be for you. The exception also covers a home for your spouse, your children or grandchildren, or your parents or grandparents.⁴ The person buying is the one who has to meet the two-year no-ownership test, not necessarily the IRA owner making the withdrawal.

What the Money Can Pay For

The funds can go toward buying, building, or rebuilding a principal residence, along with the usual settlement costs, closing costs, and financing fees that come with a home purchase.³ Investment properties and vacation homes don’t qualify. It has to be someone’s primary residence.

Penalty-Free Isn’t the Same as Tax-Free

This is where people get caught out. The homebuyer exception removes the 10% penalty on earnings. It does not automatically make those earnings income-tax-free. For that, the withdrawal has to be a “qualified distribution,” which means your Roth IRA has to have been open for at least five tax years.⁵

The five-year clock starts on January 1 of the tax year of your first contribution to any Roth IRA. If your first contribution was made in April 2022 for the 2021 tax year, your clock started January 1, 2021, and you clear the five-year mark on January 1, 2026.

Meet both the five-year rule and the homebuyer requirements, and the earnings come out with no penalty and no income tax. Meet the homebuyer requirements but not the five-year rule, and you dodge the penalty but still owe ordinary income tax on the earnings.¹ For a Roth opened recently, that gap can mean hundreds or thousands of dollars in unexpected tax.

The 120-Day Deadline

The withdrawn funds have to be used for qualified acquisition costs within 120 days of the day you receive them. That means actual payment, not just a signed contract.³

If the deal falls apart or the timeline slips past 120 days, you can redeposit the money into an IRA as a rollover contribution within that same 120-day window to avoid taxes and penalties.⁴ Once that 120th day passes, the distribution is locked in and so are the tax consequences. Timing the withdrawal close to your expected closing date is the safest approach. Pulling funds months before you’ve found a house invites trouble.

Roth 401(k) Money Does Not Qualify

The first-time homebuyer exception applies to IRAs only. A Roth 401(k) through your employer isn’t covered by the exception under Section 72(t)(2)(F), so an early withdrawal from that account would still face the 10% penalty on the earnings portion, home purchase or not.⁶

Rolling a Roth 401(k) into a Roth IRA before the withdrawal is one workaround. Be aware that the five-year clock for the receiving IRA runs from your first contribution to any Roth IRA, not from the rollover date.

Reporting the Withdrawal

Your custodian will report the distribution on Form 1099-R, usually issued in January or February of the following year. Box 7 carries a distribution code that tells the IRS how to classify it.⁷

On your return, you’ll file Form 8606 to report the Roth IRA distribution and track your basis, meaning the running total of contributions and conversions. That form is how you show the IRS that contributions came out first and that any earnings portion qualifies for the homebuyer exception.⁸ Skipping Form 8606 when it’s required carries a $50 penalty, and the bigger risk is losing the paper trail that proves your withdrawal was tax-free.⁹ Hold on to your purchase agreement, closing documents, and distribution records in case questions come up years later.

What It Costs You in the Long Run

Being allowed to take the money doesn’t mean the math works in your favor. Every dollar you pull loses decades of tax-free growth inside the Roth. And unlike a 401(k) loan, there’s no way to “repay” a Roth IRA withdrawal. You can only rebuild the balance through future annual contributions, capped at $7,500 for 2026.² Replacing a $30,000 withdrawal would take at least four years of maxed-out contributions, and the years of compounding you skipped don’t come back. If you have other options for the down payment, whether that’s a savings account, gift funds, or a first-time buyer assistance program, those are usually worth exhausting first.

1
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
2
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026; IRA Limit Increases to $7,500
3
Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
4
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs) – PDF
5
Office of the Law Revision Counsel. 26 U.S. Code 408A – Roth IRAs
6
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
7
Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025)
8
Internal Revenue Service. About Form 8606, Nondeductible IRAs
9
Internal Revenue Service. Instructions for Form 8606 (2024)