Withdraw from your IRA for a Bigger Down Payment

We're purchasing a home this year, and we're shooting for a 20% down payment. We're pretty close already, but we want to make sure we have plenty for the down payment, the closing fees, immediate furniture purchases, and still have plenty in our emergency fund.

One thing we've decided we could do is withdraw from our retirement IRA. Before you shoot me for dipping into our retirement, let me give you the background on this fund. I started a traditional IRA about 7 years ago before I began contributing to a 401K to avoid paying taxes on some extra savings I had built up. Because I now contribute to a 401K, and consider it our primary retirement savings vehicle, the IRA is just sitting there.

Anyway, about 25% of this IRA are funds in which I have “basis.” In other words, I paid the taxes on the contribution already. I did this because there was a year in which I contributed to my 401K and the IRA in the same year. It was a year in which the rules hadn't changed yet, so I had to fork over the taxes for the IRA contrib. Confusing, I know…but just know I've paid the taxes on this 25%. So, for this 25%, I can withdraw without having to pay any taxes. Also, since I'd be withdrawing for a first home purchase, I would avoid the IRS penalty for early withdrawel. Check out the full extent of the rules here.

I really think this a good move for us….no taxes, no penalty, more liquid funds at closing, and I'll never again have to remember I have that basis in the IRA funds.

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Last Edited: July 26, 2017 @ 6:12 pm
About Philip Taylor

Philip Taylor, aka "PT", is a former practicing CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of FinCon, the conference and community dedicated to helping other financial influencers and brands. He created this website back in 2007 to share his thoughts on money, hold himself accountable, and to meet others passionate about moving toward financial independence.

PT uses Personal Capital to keep track of his financial life. This free software allows him to review his net worth regularly, analyze his investments, and make decisions about his financial future.

PT keeps a portion of his emergency fund in Betterment, the automatic investing tool that makes investing super simple. Betterment focuses on what matters most: savings rate, time in the market, investing costs, and taxes. PT recommends this service to anyone looking to get started investing for themselves.

All the content on this blog is original and created or edited by PT.