IRS Rules on IRA Funds for a Home Purchase at Age 66

When you've reached retirement, you can access the money you've socked away all those years in your individual retirement account. Whether you're buying a home for your primary residence or a vacation home, you won't have to worry about early withdrawal penalties on distributions from either your traditional or Roth IRA at age 66.

Traditional IRAs

The IRS does not have any special rules on the purchase of a home with IRA money when you're 66 years old -- or any age over 59 1/2 for that matter. See, when you turn 59 1/2, you can take qualified distributions from your traditional IRA for any reason, including buying a home. Qualified distributions aren't penalized, but count as taxable income that gets taxed at your ordinary income tax rate in the year that you take the withdrawal.

Qualified Roth IRAs

Before you can take a qualified distribution from a Roth IRA, you must meet two criteria. First, five years must have passed since Jan. 1 of the tax year that you made your first Roth IRA contribution. Anyone who is at least 59 1/2 years old satisfies the second criteria for age. If you meet both elements, you get to take all the money you want out of your Roth IRA without taxes or penalties, including to buy a home.

Non-Qualified Withdrawals

If you haven't had your Roth IRA open for five years, you can't take qualified distributions no matter how old you are. But, you can always get your contributions out tax- and penalty-free. For example, suppose you opened the Roth IRA two years ago and have put in $10,000 so far. You could get that $10,000 out without taxes or penalties to buy a home. However, if you took out more than your contributions, the earnings count as taxable income, but you won't have to pay the early withdrawal penalty because you're older than 59 1/2.

First-Time Homebuyer Exception

IRAs offer a first-home purchase exception to the early withdrawal penalty, but when you're over 59 1/2 years old, it's a moot point because your distributions are either qualified traditional IRA or Roth IRA withdrawals, so the penalty doesn't apply to begin with, or non-qualified Roth IRA withdrawals, which aren't hit with the early withdrawal penalty because you're over 59 1/2. The exception only gets you out of the early withdrawal penalty, but it doesn't help you avoid income taxes.