Can You Use Your Retirement for a Home Down Payment?

Not all retirement plans can be tapped to buy a home.

Buying new apartment image by Fantasista from

Some people do make use of their retirement funds to come up with a down payment on a home. IRAs, for example, generally allow this. However, not all retirement savings vehicles allow you to tap them for non-retirement purposes, such as the down payment on a home.

Traditional IRAs

Normally, IRA rules impose a 10 percent penalty on withdrawals prior to age 59-1/2. However, IRAs also allow for a waiver of that penalty in the case of a "hardship distribution." Under this set of rules, you can withdraw up to $10,000 from a traditional IRA to pay a down payment on a home for yourself or a family member. You'll still have to pay income taxes, to the extent you funded your IRA with tax-deductible dollars, but no penalty will be due for an early withdrawal if you are younger than 59-1/2.

Roth IRAs

Roth IRAs also allow for similar hardship withdrawals. You can withdraw up to $10,000 for a home for yourself or a loved one, penalty-free. You will be taxed only on the earnings in your account, provided you left the money in your account for at least five years.

401(k) Plans

Not all 401(k) plans allow for withdrawals while you are still in service. Hardship withdrawal provisions vary from plan to plan. Check with your plan administrator for the rules specific to your employer or plan. Some 401(k) plans allow you to borrow money for the purpose of making a down payment on a house. However, you must generally repay the loan within five years, or face income taxes and penalties on the amount you failed to pay back.

Thrift Savings Plan

If you are a uniformed service member or federal employee, and you have been contributing to the Thrift Savings Plan, you can borrow money for up to 15 years to help finance a home. This is a much more generous loan provision than those available in 401(k)s. You must be in active service to the government to take this loan. The payment will be deducted from your federal paycheck until the loan is paid off. The interest rate is the same as that available in the G-fund within the TSP.