Tap your IRA Penalty Free

There are not many situations where you can spend the money from your IRA or Roth IRA accounts before you are 59 ½ without suffering the dreaded 10% penalty. But, since the Taxpayers Relief Act was passed back in 1997, first time homebuyers are allowed to use up to $10,000 of their IRA money toward a home purchase, penalty-free.

This is good news not only for first time buyers, but also for close relatives. If you want to help your spouse, children, grandchildren or parents buy a home, you can also use your IRA savings for them, providing they are first-time buyers.

“First time buyer” has a broader definition than you might think. According to the government, a first time buyer is someone who hasn’t owned a home in the last two years. So, technically, you could be a first time buyer several times over the span of your lifetime, but you can only use your IRA money once in your life without paying the penalty.

If you are thinking of buying or helping a relative with a home purchase, be sure to consult a professional tax consultant to see if you qualify for a penalty-free withdrawal.