Tell me about withdrawing from your IRA for a down payment on a mortgage

May 1, 2023 1:43 PM

We are in the market for our first house. We understand we can either borrow or withdraw from our IRAs, with certain restrictions, and we do plan to do that. Have you done that? What did you learn that I should know? How long from the point of the request to withdraw/borrow did you have the cash in hand?

Thanks for sharing any experiences.

In case of the urge, please don't advise us against it - if we had any other options for scaring up sufficient cash, we'd be doing that.

posted by Miko to Work & Money (10 answers total)

You can't borrow from your traditional or Roth IRA (as opposed to 401(k)).

If you are a first-time homebuyer (i.e., have not had a interest in a primary residence in the past 2 years), you can withdraw up to $10K from your traditional IRA without paying a penalty for purchasing the home.

If you have a Roth IRA, with some restrictions you can withdraw your contributions without penalty. Your custodian firm should handle paying out contributions first.
posted by praemunire at 2:11 PM on May 1, 2023 [3 favorites]

If you have a Roth IRA, with some restrictions you can withdraw your contributions without penalty.

I did it through Vanguard with a ROTH IRA, and I withdrew $20k worth of contributions for a downpayment, and it took like 2 days, and since it's your money that you already paid taxes on, there were no forms or anything.
posted by The_Vegetables at 2:49 PM on May 1, 2023 [1 favorite]

Before you draw a big chunk from your retirement savings, explore how going with an FHA loan might help you financially.
posted by Thorzdad at 4:22 PM on May 1, 2023

A friend withdrew funds from his 401k (with the 10% penalty) for a house. In his case, he withdrew rather than borrowed since he needed more funds than he would have been able to borrow. He has absolutely zero regrets almost 10 years later. I don't remember exactly how long it took to access the funds, but it didn't take long from when he told me to when he was able to use the funds.
posted by Dip Flash at 4:52 PM on May 1, 2023 [1 favorite]

We Borrowed against a 403b thru TIAA-CREF. These may be the same as a 401k..... If it's run thru your workplace (as most are)

You may need employer authorization, and spousal waivers/authorization.
Your college/workplace HR should handle that.

From a mortgage broker when I brought this up:

"If retirement funds are being liquidated then we would need evidence of terms of withdrawal. If a loan is taken against retirement funds then we would need evidence of the terms of the loan."
posted by lalochezia at 9:56 PM on May 1, 2023

I have done this in the past, though with a 401k, not an IRA. And we were not first time home buyers. Our financial advisor agreed it was the best solution for our circumstances. Mine was a withdrawal, so I had to pay taxes on it. It took less than 48 hours for the wire transfer to show up in my account. Absolutely zero regrets. If I had to do it all over again, I would do it the same way.
posted by ImproviseOrDie at 5:05 AM on May 2, 2023 [1 favorite]

How long from the point of the request to withdraw/borrow did you have the cash in hand?

With TD Ameritrade, in a different but similar situation, I was able to go from request to cash in hand via wire transfer in about 4 hours for a $20 fee. If you don't need it same day, a free ACH should take a few days. The big variable is what sort of vetting that your provider does to ensure that it's not a fraudulent transaction - pre-retirement people suddenly withdrawing 10s of thousands of dollars is legit but also looks a lot like fraud. If their process is slow, that would add time.

Another important factor if precise timing is important is whether your account is margin eligible and what your remaining funds are. If your account is not set up for margin or if you're clearing the account entirely, it will take two days for your sales to become final and the funds eligible for withdrawal.
posted by Candleman at 5:15 AM on May 2, 2023

We withdrew from our IRAs (10k each) when we bought our house - absolutely no regrets. Getting cash in hand took different amounts of time because our IRAs are held with different brokers. If I recall correctly, one took 2 business days and hit our checking account directly; the other took closer to a week and they sent us a check.
posted by okayokayigive at 5:54 AM on May 2, 2023

As others have said, you generally can't borrow from a Trad/Roth IRA, but you can make a withdrawal against your contributions. I paid a small fee and had the funds transferred to my checking same-day; otherwise it would have been 3-5 days for a check.

To help minimize the amount you'd need to withdraw from your IRA, as noted above, an FHA loan may be worth exploring; also many credit unions offer very nice first-time home buyer options for members, including down payment grants and potentially very low down payment costs. With BECU, for example, members can apply for down payment grants up to $10k, and could pay as little as 1% toward down payment or closing costs. (And, credit unions are almost always a better option thank banks, anyway!) Good luck; I hope you're able to find a solution that works for you.
posted by xedrik at 10:54 AM on May 2, 2023

Response by poster: For clarification, this pertains to rollover IRAs from former employers.
posted by Miko at 12:29 PM on May 2, 2023