Is there a penalty if I use my IRA to buy a home?


Q. I want to purchase a home. What is the penalty if I close my IRA account? I am 79 years old.
— Making plans

A. Congratulations on your decision to purchase a home.

There are several things to consider if you’re planning to pull money from your IRA for the purchase.

First, we’re going to assume you’re referring to closing a traditional IRA and using the proceeds to purchase your home.

“There is no penalty per se, as you are older than 59 ½,” said Timothy Brunnock, a financial advisor and attorney with Trinity Financial Strategies in Morristown. “However, once you remove the IRA proceeds from your qualified IRA account, there are tax consequences that will be triggered.”

For example, he said, if your IRA account is worth $100,000 and you withdraw all of that money to put towards a home, you will have to pay tax the following April 15 on that $100,000 distribution. The amount of tax you will pay will depend on your tax bracket in the year you made your withdrawal, Brunnock said.

If, however, the account from which you would like to withdraw funds is a Roth IRA, you would not pay any penalties, nor any tax, because the Roth IRA by definition had been funded with after-tax dollars.

A bigger question would be whether this is actually the right move for you to make at this time, he said.

“While home ownership is an admirable goal, many individuals at 79 years old are actually looking to downsize and relieve themselves of the responsibilities of owning their own home,” Brunnock said. “You would need to consider your other sources of income and how you would fund your day-to-day living expenses.”

He recommends you speak to a financial advisor to make a home purchase and liquidating an IRA would not be detrimental to your long-term financial security.

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This story was originally published on June 29, 2020. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.