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.

Protecting Your Identity

Protecting your Data
Special report 09/14/2017
Michael Kresh CFP
As most of you know by now the credit reporting bureau, Equifax, had a massive data breach. Some of our clients have been asking what we are recommending that they do.
Since this is a major problem, and Equifax's solution is not necessarily sufficient, all of us should take steps to protect our data from being misused. Although Equifax has a website to help determine if you were affected by the data breach many sources indicate that using this service may waive certain legal rights.
The first thing that you should do is get an update of your credit score. Many credit cards and other sites give you access to at least one free report. We have found CreditKarma to be an excellent free source to set up permanent monitoring of your credit score and to check your credit activity.
Go to:  and set up an account to get your credit information quickly. They will send you an alert if they notice any important changes so that you can check for suspicious activity.
However, if you want to be proactive rather than reactive, we are recommending that you put a credit freeze on all of your credit bureau accounts[i]. You will have to call them each individually. 
Once the data is frozen, it will be difficult for someone to create a false account in your name. You will be given a pin to unlock your accounts if you need to apply for a loan or a credit card. This may be a bit inconvenient, however, it will be more secure.
In either case, we all must be more diligent in watching our accounts, be it bank accounts or any credit card accounts to minimize exposure to this problem.

[i] If you are currently applying for any new credit, before freezing your accounts, please contact us so we can discuss how to navigate the situation.
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