Most people establish individual retirement accounts (IRAs) to help save for their retirement years. Because of the tax and investment advantages of IRAs, restrictions are placed on these accounts to prevent them from being withdrawn prematurely to be used for purposes other than as retirement funds. However, these investment accounts do have certain provisions that allow you to withdraw funds without incurring a penalty tax. One of these provisions allows for a withdrawal of funds by first-time home buyers in order to make a down payment on a house.
Step 1
Confirm that you are considered a first-time home buyer. This classification is not as rigid as its title would suggest--if you have not owned a home within the previous 2 years from the date you want to purchase your new home, you are considered a first-time home buyer.
Step 2
Explain to your account manager--the individual or financial institution that manages your investment assets, such as an IRA--that you wish to make a down payment on your new home using funds from your IRA. The account manager will want to confirm that you qualify for this provision before providing you with a withdrawal request form.
Step 3
Fill out the withdrawal request form, including the amount you wish to withdraw and specify a down payment as your reason for making the early withdrawal. Withdrawal forms are designed to leave a paper trail when you move money around, providing an extra level of security that reduces the risk of your investments being illegally moved or withdrawn. The maximum amount you can withdraw to put toward a down payment on a home is $10,000. Be sure to sign the form before returning it to the account manager.
Step 4
Receive the funds either through an account transfer directly into your bank account or via a check in the mail.
Step 5
Use these IRA funds within 120 days to qualify for the exemption. If you do not use the IRA distribution within this time, you will be subject to an early withdrawal penalty fee.
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