Roth and Traditional IRA Early withdraws for a first time home purchase
Hello!
I have a client looking to take advantage of the $10,000 first time home buyer withdraw penalty free exclusion. She is approximately 35 years old.
Both her Traditional and Roth IRA’s have been open for longer than 5 years.
She is trying to squeeze as much money out of this as possible. To my understanding the $10,000 limit is not per account, but per person so she could NOT take $10,000 from both accounts. Just $10,000 total combined.
However, where I am uncertain is if she can simply take $10,000 from her Trad IRA (obtain the penalty free exclusion and of course pay tax on the money) and then take up to $17,500 from her Roth which would reflect her total contributions to her Roth.
To my understanding, you can withdraw Roth IRA contributions without taxes or penalties at any age, including before age 59 1/2
Therefore…can she take $10,000 from her Trad IRA and obtain the penalty free exclusion and take all of her Roth IRA contributions?
Permalink Submitted by Alan - IRA critic on Fri, 2025-06-06 14:55
Yes, a 10k penalty free distribution can be taken from the TIRA, and also any amount from the Roth IRA regular contribution balance with no limit, so 27.5k in total.
Note that the Roth distribution reported on Form 8606 must NOT show any amount on line 20 (first time homebuyer expenses) because the 10k lifetime limit for such distributions includes any penalty exception for the TIRA distribution. In other words, it’s not an additional 10k and the limit applies to the total of TIRA and Roth IRA distributions.
Also, any balance of Roth conversions in the last 5 years will be subject to the 10% penalty, and the first homebuyer exception to waive that penalty is also included in the 10k lifetime limit. Therefore, she could distribute regular Roth contributions and conversions tax and penalty free except for any conversions done in the last 5 years.
There is another complex option available that might save taxes. If client did not want to take taxable distributions from the TIRA, and also had 10,000 of gains in the Roth IRA, she could leave the TIRA alone and distribute 27,500 from the Roth IRA. The first 10,000 would be treated as a qualified Roth distribution (tax and penalty free) and the next 17,500 would come from the regular contributions balance under the ordering rules, also tax and penalty free. Downside is of course having less Roth money left for later.