Should First-Time Homebuyers Use a Roth IRA to Buy a Home?

Enter the Roth IRA Hack

Imagine your Roth IRA as a two-layered treasure chest. The top layer is stuffed with your hard-earned contributions. This layer is pretty flexible—you can dive in, hands first, anytime you need cash, no questions asked. Beneath that, there's a shiny pile of investment earnings. This pile is fenced off, usually safeguarded for the future you who is lounging on a beach, retired and happy. But what if I told you that you could grab up to $10,000 of that without the usual penalties? And all for a cause as noble as buying your first home!

Here’s the requirements:

• Be a First-Timer: You (or you and your spouse) haven’t owned a home in the last two years.
• Age of the Account: Your Roth IRA has been open for at least five years.
• Quick Moves: Once you take the money out, you have 120 days to seal the deal on a house.

What's Up for Grabs?

You can always pull out your contributions penalty-free. But, if your dream home costs more than what you've contributed, you can tap into your investment earnings for that extra push, up to $10,000. If you have a spouse, and both of you meet the criteria, that’s $20,000 combined towards your future home.

What’s cool is this isn’t just for the down payment. Closing costs? Covered. If you’re feeling generous, you can even use it to help buy homes for your kids, grandkids, or parents. But before you start playing financial hero, chat with a tax expert to make sure your plans align with the IRS’s playbook.

The Plot Twist: Should You Really Do It?

Cracking open your Roth IRA feels a bit like using a time machine for cash—it's thrilling but risky. Each dollar you take out could have been more dollars in the future, sitting tax-free, growing through investments. Withdrawing money now could mean you’re short-changing future you.

Ever heard of compound interest? Pulling out cash now disrupts that magic of compount interest, reducing what you could have had when you finally decide to withdraw that money.

Mortgage vs. Magic: What’s the Better Bet?

Let’s say the market promises an average 6-7% return annually; that’s conservative, considering the S&P 500’s dance around a 10% return since the 1920s. In a world where mortgage rates are low, borrowing more to keep your IRA intact might be the smarter play. This is because the potential long-term gains from your Roth IRA might outweigh the cost of a bigger mortgage now.

The Verdict

Finally, should you raid your Roth IRA to buy a home? It’s a heavyweight decision. Crunch the numbers, consider your financial horizon, and maybe breaking that IRA piggy bank will be the key move that helps you lay down roots in a place you can call your own.

Still need help deciding? Speak with one of our local agents to find out if this move is best for you. We are not tax advisors, but we can certainly help point you in the right direction in helping you find down payment assistance for your first home.

Graham Team Real Estate • (702) 930-9551 • Team@grahamteamnv.com

3007 W Horizon Ridge Pkwy, Ste. 210, Henderson, NV 89052