The Roth Advantage Part 2: First Time Homebuyer


March 16, 2018

Dan Kresh FPQP™


There are ways for first time homebuyers to access some funds from retirement accounts without "penalty". Though you may be able to avoid an early withdrawal penalty, you will be lowering the amount in your retirement account. You would likely be purchasing your first home many years before you plan to retire, depleting your account when it has the most time to grow. This is a complicated decision. It is important to understand the differences between how you could access funds early from Traditional or Roth IRAs.

A first-time homebuyer can access up to $10,000 from either a Roth or Traditional IRA to contribute towards a down payment[i]. Any funds taken out from a Traditional IRA, for any reason, including a first-time home purchase would be taxed as ordinary income. The tax deferred nature of the Traditional IRA is its biggest advantage, so using funds from a Traditional IRA to help fund a home purchase will forfeit some of that benefit while shrinking your nest egg.
With a Roth IRA, you can take out contributions at any time for any reason without a tax consequence since it's already after-tax dollars[ii]. The Roth IRA owner can also access up to $10,000 of profit for a first-time home purchase, and if you have had the Roth for more than 5 years that would be tax free.[iii] You should NEVER consider a retirement fund an emergency fund, however; the fact remains that there are less barriers and penalties to accessing funds from a Roth IRA early than from a Traditional IRA.

Tapping into your retirement account to buy a home should not be your first choice, but it's nice to know what options could be on the table. You have the best chance of growing your nest egg if you contribute the maximum into your IRA for as long as possible. Taking funds out of your retirement account before retirement age, with or without penalty and or tax, means you will have a smaller principal to hopefully compound over time. Your retirement money will serve you best in retirement and should be invested in a well-diversified portfolio for the long haul. Any investment involves the risk of loss of principal but the more diverse your investments and the longer your time horizon the better your chance is to mitigate that risk.

If your income is at or approaching limits for contributing to a Roth IRA part 3 of this series will discuss a potential way for you to contribute to a Roth IRA using Roth conversions. It's never too early to start thinking about retirement. The earlier you start the more time you have for growth. You work hard for your money, we work hard so your money can work for you.

[i] IRS
[ii]Roth IRA Withdrawl
[iii]IRA To Buy A House

A Roth IRA distribution is qualified if you've had the account for at least five years and/or the distribution is made after you've reached age 59½, because of your total and permanent disability, in the event of your death or for first-time homebuyer expenses. Distributions made prior to age 59 1/2 may be subject to a federal income tax penalty. If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings.

You should always consult a tax professional and though this piece contains some tax information it should not be considered tax advice.

Matthew Barbis Rings Opening Bell at NASDAQ

 We were thrilled to be present on August 22 when our colleague Matthew Barbis rang the opening bell in honor of the National Rose Brucia Stranger Safety Awareness Day. He was accompanied by WL Ross & Co. CEO Wilbur Ross and Graff Diamonds CEO Henri Barguirdjian. 

For those of you who have not met Matthew, he is the founder of the Rose Brucia Foundation, which he began in 2004 after his 11 year old cousin, Carlie Brucia, was abducted and murdered in Sarasota, FL. The Rose Brucia Educational Foundation’s goal is to reduce the number of child abductions in the U.S. by educating and empowering young minds with the knowledge necessary to avoid abduction.

Matthew’s passion for the organization can be seen in the great work that he has accomplished.  In addition to creating the educational programs and doing presentations to children, Matt has also been successful in getting celebrity involvement. A public service announcement by Donald Trump dramatically boosted awareness of the Foundation and its programs. National spokesperson Sue Herera, of CNBC, has also given the Rose Brucia Foundation her support and high visibility.

Matthew personally instructs the live and video versions of the Stranger Safety Awareness Program and presents the self-defense demonstration. Utilizing puppets and simple self-defense techniques, the foundation visits elementary schools on a regular basis and performs the Stranger Safety Awareness Program, free of charge.  To date, over 57,000 children have participated in the program, which is offered in forty-five school districts, forty-six private institutions, five Chambers of Commerce and one United States Military Base. Matthew’s goal is to spread the work of the foundation to children nationwide, and to teach children everywhere how to stay safe. 

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