Using an IRA for a first home: the first-time buyer exception

The rule in the IRS's words

Publication 590-B says that even if you are under age 59½, you do not have to pay the 10 percent additional tax on up to $10,000 of distributions you receive to buy, build or rebuild a first home. To qualify, the distribution must meet all of these requirements:

• It must be used to pay qualified acquisition costs before the close of the 120th day after the day you received it.
• It must pay for the main home of a first-time homebuyer who is you, your spouse, your or your spouse's child or grandchild, or your or your spouse's parent or other ancestor.
• Added to all your prior qualified first-time homebuyer distributions, the total cannot be more than $10,000.

Qualified acquisition costs include the costs of buying, building or rebuilding a home and any usual or reasonable settlement, financing or other closing costs.

Who is a first-time homebuyer

Generally, you are a first-time homebuyer if you had no present interest in a main home during the two-year period ending on the date of acquisition. If you are married, your spouse must also meet that test. The date of acquisition is the date you enter into a binding contract to buy the home, or the date building or rebuilding begins.

That means someone who sold a home three years ago can qualify again. It also means a married buyer whose spouse owned a home within the two years does not.

Worked examples for 2026

The chart above shows Casey's example. The calculator applies the same steps to your figures, including any amount you used in earlier years.

Roth IRAs work differently

Roth IRA distributions follow their own ordering rules, and your regular contributions can generally be withdrawn without tax or penalty. Earnings are where the first-home rules matter, and whether a distribution is a qualified distribution also depends on a five-year holding period. Publication 590-B explains the details; read its Roth chapter or ask a tax professional before relying on a Roth for your down payment.

If the purchase falls through

Publication 590-B notes that if you took a distribution to buy, build or rebuild a first home and the purchase or construction was cancelled or delayed, you could generally put the money back into an IRA within 120 days of the distribution without paying income tax or the additional tax. It is treated as a rollover contribution.

Reporting

Your IRA provider reports the distribution on Form 1099-R. If the form does not show an exception code that matches your situation, Topic 557 explains that you file Form 5329 to claim the exception, along with Schedule 2 of Form 1040 when the additional tax applies.

Workplace plans are different

The first-home exception does not appear among the exceptions for workplace plans listed in IRS Topic 558, so an early 401(k) withdrawal for a home generally faces the 10 percent additional tax. Many plans instead offer loans. The IRS explains that the maximum a plan can permit as a loan is the lesser of $50,000 or the greater of $10,000 and 50 percent of your vested balance, that repayment must generally occur within five years, and that a loan used to buy your principal residence may be repaid over a longer period. Plans are not required to offer loans, and a loan reduces your take-home pay and can affect your debt-to-income ratio.

The cost you cannot see on the form

Money taken out of retirement accounts stops growing for retirement. Before you withdraw, compare the alternatives: a smaller down payment with mortgage insurance, an assistance program, a gift, or waiting a little longer. Tax rules change, so confirm the current year's rules in the IRS publications listed below before you act.