Quick Fix Summary
File Form 8606 (Rev. Dec 2025) with your tax return and label up to $10,000 as a “first-time homebuyer exception.” Use the cash within 120 days for qualified acquisition costs. A traditional IRA withdrawal remains subject to income tax unless it's a Roth after five years.
File Form 8606 (Rev. Dec 2025) with your tax return, report up to $10,000 as a first-time homebuyer exception, and spend the funds within 120 days on qualified costs; income tax still applies to traditional IRA withdrawals unless it's a Roth after five years.
You must file Form 8606 (Rev. Dec 2025) and spend the withdrawn funds within 120 days on qualified costs; income tax still applies to traditional IRA withdrawals unless it's a Roth after five years.
You must file Form 8606 (Rev. Dec 2025) and spend the withdrawn funds within 120 days on qualified costs; income tax still applies to traditional IRA withdrawals unless it's a Roth after five years.
Pulling money from a traditional or Roth IRA before you hit 59½ usually means a 10% early-withdrawal penalty plus income tax. Congress carved out an exception for first-time homebuyers, but it’s capped at $10,000 over your lifetime—and that cap hasn’t budged since 2026. Whether you tap a traditional or Roth account, the 120-day spending window and $10,000 limit still apply. With a Roth, your contributions come out tax-free, converted amounts are tax-free after five years, and earnings may be taxed if you haven’t held the account that long.IRS Form 8606
Qualify by ensuring neither you nor your spouse owned a primary home in the past two years and commit to spending every dollar within 120 days on qualified acquisition costs.
Qualify by ensuring neither you nor your spouse owned a primary home in the past two years and commit to spending every dollar within 120 days on qualified acquisition costs.
- Confirm eligibility
- Make sure neither you nor your spouse owned a primary residence in the two years before you take the withdrawal.
- You’ve got to plow every dollar you pull out into qualified costs within 120 days—think closing costs, settlement fees, or construction expenses listed in IRS Pub 590-A.
- Calculate tax impact
- Traditional IRA: You’ll owe ordinary income tax on the withdrawal, but the 10% penalty disappears up to $10,000.
- Roth IRA: Contributions come out tax- and penalty-free anytime; converted amounts are tax- and penalty-free after five years; earnings may get taxed unless you’ve held the account at least five years and an exception applies.
- Initiate the withdrawal
- Log in to your IRA provider’s site (Fidelity, Vanguard, Charles Schwab, etc.).
- Navigate: Accounts → Transfer → Withdraw → Traditional/Roth IRA → First-Time Home Purchase (Exception).
- Pick “direct payee” so the money goes straight to the closing agent—no check to lose.
- Complete Form 8606 (Rev. Dec 2025)
- Grab the latest revision from IRS Form 8606.
- In Part I, line 17, enter the exact amount you used (up to $10,000).
- Check the box for “First-time homebuyer exception under §72(t)(2)(F).”
- Staple the finished form to your Form 1040 when you file.
- Meet the 120-day deadline
- The 120-day clock starts the day the funds land in your account; your custodian will issue a 1099-R with distribution code “02” to flag the exception.
- Keep every receipt and settlement statement for at least seven years—just in case the IRS comes knocking.
If the standard route doesn't fit, consider a 60-day rollover, withdraw Roth contributions first, or use your spouse’s $10,000 allowance for up to $20,000 tax-free.
If the standard route doesn't fit, consider a 60-day rollover, withdraw Roth contributions first, or use your spouse’s $10,000 allowance for up to $20,000 tax-free.
- Option 1 – 60-day rollover
- Take the distribution, then put it back within 60 days to reset the clock; this still counts against your one-per-year rollover limit and still needs Form 8606.
- Option 2 – Roth contributions first
- Pull out Roth contributions tax- and penalty-free at any age; earnings still fall under the $10,000 cap and 120-day rule.
- Option 3 – Spousal IRA
- Each spouse can withdraw up to $10,000 from their own IRA, giving you up to $20,000 tax-free for the purchase.
To avoid future issues, wait until 59½ if possible, preserve the $10,000 lifetime cap, keep receipts for seven years, and explore a SEPP plan if you need steady income.
To avoid future issues, wait until 59½ if possible, preserve the $10,000 lifetime cap, keep receipts for seven years, and explore a SEPP plan if you need steady income.
- If you can swing it, wait until you’re 59½—no forms, no taxes, no penalties.
- Think of that $10,000 lifetime cap as precious; once it’s gone, future first-time homebuyer withdrawals lose the penalty exception for good.
- Hang onto every receipt and settlement statement for at least seven years so you can prove the money went where it was supposed to.
- Look into a Series of Substantially Equal Periodic Payments (SEPP) if you need regular income; the payments must run at least five years or until you hit 59½, whichever is longer.
File Form 8606 (Rev. Dec 2025), report up to $10,000 as a first-time homebuyer exception, and spend the funds within 120 days on qualified costs; income tax still applies to traditional IRA withdrawals unless it's a Roth after five years.
File Form 8606 (Rev. Dec 2025), report up to $10,000 as a first-time homebuyer exception, and spend the funds within 120 days on qualified costs; income tax still applies to traditional IRA withdrawals unless it's a Roth after five years.
This is the cleanest way to use retirement cash for a home purchase without the 10% early-withdrawal penalty while staying square with the IRS.
Bottom line
File Form 8606 (Rev. Dec 2025), label up to $10,000 as a first-time homebuyer exception, and spend the cash within 120 days on qualified costs. A traditional IRA withdrawal remains subject to income tax unless it's a Roth after five years.
Can I liquidate my IRA without penalty?
You can dodge the early-withdrawal penalty by waiting until you’re at least 59½. Once you hit that age, you can take out any amount from your IRA without owing the 10% penalty.
Can I liquidate my IRA to buy a home?
The IRS won’t sock you with a penalty or tax on earnings you withdraw before 59½ if they meet the first-home exception rules. But it will penalize any earnings you pull out during the first five years.
Report Roth distributions on Form 8606, noting the amount you used for a qualified first-time home purchase.
Can I withdraw from my IRA to invest in real estate?
Once you’ve used up your contributions, you can pull out up to $10,000 of the account’s earnings or converted dollars—without the 10% penalty—for a first-time home purchase. If your Roth IRA is younger than five years, you’ll still owe income tax on the earnings.
Can I withdraw all my money from my IRA at once?
You can empty either a traditional or a Roth IRA in one shot without penalty if you roll the money into an annuity, which will then send you regular payments.
Can I use IRA money for closing costs?
You can tap up to $10,000 of your IRA when buying your first home. Just make sure to use the funds within 120 days of withdrawal for qualified acquisition costs—closing costs, financing fees, and other usual settlement expenses all count.
How much tax will I pay if I cash out my IRA?
Pulling money from a traditional IRA before 59½ triggers a 10% tax penalty (with a few exceptions) plus regular income tax. On top of that, the withdrawal gets taxed as ordinary income, which could bump you into a higher bracket and cost you even more.
Can you move IRA into cash?
You can shift your IRA holdings from stocks and bonds into cash—or the reverse—without owing taxes or penalties. This move is called portfolio rebalancing, and while it’s penalty-free, you might still face transaction fees.
How can I avoid paying taxes on my IRA withdrawal?
- Avoid the early withdrawal penalty by waiting until at least age 59½.
- Roll over your 401(k) without tax withholding when you change jobs.
- Don’t forget about required minimum distributions once you turn 72.
- Space out distributions to avoid two in the same year.
- Start withdrawals a little early if you need to.
- Donate your IRA distribution to charity instead of taking it yourself.
Can I borrow money from my IRA for 60 days?
Yes, you can technically treat an IRA withdrawal as a short-term loan under the 60-day rollover rule. Just remember you’ve got to park the money back in an IRA within 60 days of receiving it.
Can I withdraw money from my IRA and then put it back?
You can slide funds back into a Roth IRA after taking them out, but only if you follow the strict 60-day rollover rule—and you’re only allowed one rollover per year.
Can I use my IRA to purchase land?
Any real estate you buy through an IRA must be strictly for investment; you and your family can’t use it personally. Buying property inside an IRA usually means paying in cash, and the IRA has to cover all ownership expenses. It’s doable, but the tax rules and paperwork can get messy.
At what age is 401k withdrawal tax free?
The IRS lets you pull money from retirement accounts without penalties once you turn 59½. After age 72, you’ll face required minimum distributions (RMDs).
What is the withdrawal rule for a traditional IRA?
You’ve got 120 days to use the money, and there’s a $10,000 lifetime cap on penalty-free withdrawals for qualified expenses. Some educational costs for you or your immediate family also qualify. Disabled individuals can withdraw without penalty, and beneficiaries face no withdrawal penalties when inheriting an IRA.
At what age does RMD stop?
Once you reach age 72 (70½ if you turned 70½ before Jan 1, 2020), the IRS requires you to take annual required minimum distributions (RMDs) from your retirement accounts.
How do I withdraw money from my IRA for a downpayment?
If you qualify as a first-time home buyer, you can pull up to $10,000 from your IRA for a down payment or to help build a home without the 10% early withdrawal penalty. You’ll still owe regular income tax on the withdrawal, though.
Edited and fact-checked by the TechFactsHub editorial team.
