Can You Use a Roth IRA to Buy a House Tax-Free?

Using a Roth IRA to buy a house is allowed, and how much it costs you depends on which layer of the account you tap. The contributions you made with your own after-tax dollars come out at any age, for any reason, without income tax or the 10 percent early withdrawal penalty. If you need to reach into the investment earnings, a first-time homebuyer exception lets you pull up to $10,000 without the penalty, though whether income tax applies depends on how long your account has been open.

Your Contributions Come Out First, Tax-Free

Every dollar you personally contributed to a Roth IRA can be withdrawn at any time, at any age, for any purpose, with no tax and no penalty. You already paid income tax on that money before it went into the account, so the IRS does not tax it again on the way out.¹

This works because of the IRS ordering rules. Any withdrawal is treated as coming from your contributions first, before touching earnings or any converted funds. You do not have to tell your custodian why you are taking the money, and no special homebuyer paperwork is needed for this portion.¹

For many buyers, this alone covers the down payment or closing costs. If the total you have contributed over the years is enough to fund what you need, you never touch earnings and the tax question ends here.

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

Once contributions are exhausted, additional withdrawals come from your investment earnings. Earnings pulled out before age 59½ would normally trigger income tax plus a 10 percent early withdrawal penalty. The first-time homebuyer exception waives that 10 percent penalty on up to $10,000 in earnings over your lifetime.²

A few things to know about that $10,000 cap:

It is cumulative across every IRA you own, and across your lifetime. Once you have used it, it is gone.
It applies per person. A married couple where both spouses qualify can each use up to $10,000 from their own Roth IRAs, for a combined $20,000.¹
Anything above $10,000 in earnings gets the full treatment: income tax plus the 10 percent penalty.

The $10,000 figure has not been adjusted for inflation since it was enacted. A bill has been introduced in Congress to raise it to $50,000, but no increase has been signed into law as of 2026.

Whether Those Earnings Are Also Income-Tax-Free

The homebuyer exception waives the penalty on earnings. Whether you also owe ordinary income tax on them is a separate question, controlled by the five-year rule. For a Roth IRA distribution to be fully qualified — meaning both tax-free and penalty-free — at least five tax years must have passed since your first contribution to any Roth IRA.³

The clock starts on January 1 of the tax year for which you made your first Roth contribution. If you opened your Roth in April 2026 and designated the contribution for the 2025 tax year, the five years run from January 1, 2025 to January 1, 2030.

What that means for you:

If your Roth has been open five tax years or more, your homebuyer withdrawal of earnings (up to $10,000) is fully tax-free and penalty-free.
If your Roth is younger than five years, the 10 percent penalty is still waived, but you will owe ordinary income tax on the earnings portion.¹

If your account is new, plan for that income tax bill before you commit the money to closing.

Who Counts as a First-Time Homebuyer

The tax code’s definition is looser than the name suggests. You qualify as long as you, and your spouse if you are married, have not owned a principal residence at any point during the two-year period ending on the date you acquire the new home.² You do not have to be a literal first-time buyer. If you owned a home years ago, sold it, and have rented for the past two years, you meet the definition.

The date of acquisition is the day you sign a binding purchase contract, or the day construction begins on a new-build home, whichever applies.² Hold onto records that show your housing history for the prior two years, such as lease agreements or tax returns without a mortgage interest deduction, in case the IRS asks.

Helping a Family Member Buy

You do not have to be the buyer yourself. You can withdraw up to $10,000 in earnings from your own Roth IRA and put it toward a home for your spouse, child, grandchild, parent, grandparent, or another ancestor.² The family member still has to independently meet the first-time homebuyer definition. The same $10,000 lifetime cap and 120-day spending deadline apply.

What the Money Can Pay For and the 120-Day Deadline

Homebuyer distributions can be spent on the costs of buying, building, or rebuilding a principal residence. That includes standard settlement fees, financing charges, and other closing costs — title fees, appraisal costs, lender origination fees, attorney charges — the kinds of items that appear on your closing disclosure.²

The withdrawn funds must be used within 120 days of the date you receive the distribution. If your purchase falls through and you cannot redirect the money to another qualifying purchase within that window, you can return it to your Roth IRA. The IRS treats the repayment as a rollover, so it does not count against your annual contribution limit. Include a statement with your tax return for the year you received the distribution explaining that you returned the funds.

Miss the 120-day deadline without returning the money, and the earnings portion loses its special treatment. You would owe income tax on the earnings, plus the 10 percent penalty if no other exception applies.

Reporting It on Your Tax Return

Your IRA custodian will send you IRS Form 1099-R by January 31 of the following year. Box 7 carries a distribution code: J for an early distribution, Q for a qualified distribution, or T when the five-year rule is met but you are under 59½.⁴ The custodian may not know you used the money to buy a home, so claiming the exception is on you.

You report the distribution on Part III of IRS Form 8606. Line 20 is where you enter your qualified first-time homebuyer expenses, up to the $10,000 lifetime cap minus anything you have claimed in prior years. Line 22 is where you enter your total basis in Roth IRA contributions.⁵ The form walks you through the math to see whether any part of the distribution is taxable. Keep your signed purchase contract, closing disclosure, and settlement documents with your tax records in case the IRS asks you to substantiate the exception.

One withholding note worth flagging: Roth IRA lump-sum distributions are treated as nonperiodic payments with a default 10 percent federal withholding rate. You can elect 0 percent by filing IRS Form W-4R. If most or all of your withdrawal will be tax-free anyway, electing 0 percent keeps the money in your pocket instead of handing it to the IRS as an interest-free loan you claim back later.⁶

What It Costs You in the Long Run

Pulling money from a Roth IRA for a home is legal, and sometimes it is the right call. But the dollars you take out lose their tax-free compounding, and you generally cannot replace them beyond your normal annual contribution limit.

A $10,000 withdrawal at age 30, assuming a 7 percent average annual return, would have grown to roughly $19,700 after 10 years, $38,700 after 20 years, and over $76,000 after 30 years, all of which would have been tax-free in retirement. Even at a more conservative 5 percent return, that $10,000 would reach about $43,200 over 30 years.

None of that makes the withdrawal a mistake. For a buyer who would otherwise pay private mortgage insurance, accept a higher interest rate, or delay buying by several years, the tradeoff can favor tapping the Roth. Compare the cost of the withdrawal against the cost of the alternative you are avoiding, and rebuild your Roth balance as quickly as your contribution limits allow after closing.

1
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
2
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
3
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
4
Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025)
5
Internal Revenue Service. Instructions for Form 8606
6
Internal Revenue Service. Pensions and Annuity Withholding