Roth IRA, Roth 401(k); First Home Downpayment (payment, taxes, deposit)

[Lux Hauler]

Can someone save me the trouble of looking at IRS code...


$10k can be withdrawn tax and penalty free from a Roth IRA if used towards down payment of a first home. Does this apply to Roth 401(k) accounts as well?

[NewbieHere]

It sounds like IRA because you can withdraw your contribution to Roth IRA anytime. I don't think there is any penalte.

[BostonMike7]

Your original deposits can be withdrawn penalty free at any time. You've already paid taxes on them, so it's your money to pull out.

Earnings on that money fall under a different set of rules

Nuts and Bolts of Five-Year Rule on Roth IRAs - WSJ

[HappyTexan]

Retirement money pulled out means you won't be making any money for retirement.

[Lux Hauler]

Originally Posted by BostonMike7

Your original deposits can be withdrawn penalty free at any time. You've already paid taxes on them, so it's your money to pull out.

Earnings on that money fall under a different set of rules

Nuts and Bolts of Five-Year Rule on Roth IRAs - WSJ

Thanks Mike, however, Roth IRAs are not the same as Roth 401(k)s; both are after-tax contributions however qualified tax-free distributions seem to have different requirements (from what I currently understand).


Here is a summary chart that I found which is a source of my confusion (see last page): http://www.morganstanleyfa.com/publi...66239bd7bc.pdf


I also found a similar chart from the IRS. I have looked through a few sections of title 26 CFR but could not find a clear answer yet, obviously there is very much in that to read.

[Lux Hauler]

Originally Posted by HappyTexan

Retirement money pulled out means you won't be making any money for retirement.

That is a very limited way of thinking about this, but ok.

[BostonMike7]

Originally Posted by Lux Hauler

Thanks Mike, however, Roth IRAs are not the same as Roth 401(k)s; both are after-tax contributions however qualified tax-free distributions seem to have different requirements (from what I currently understand).

.

Ah, you are right.


I have a Roth 401K, so that's what sprang to mind when I read your question.

[Aredhel]

Originally Posted by Lux Hauler

That is a very limited way of thinking about this...

But a good one. You don't want to fall into the trap of thinking of a ROTH account as a backup savings account. A one-time withdrawal for a very specific purpose might be all right, but always remember it's money intended for your retirement; you should have additional savings elsewhere to cover other things like down payments on a house and medical bills.

[Lux Hauler]

Originally Posted by Aredhel

But a good one.

Not necessarily. It is just generic opinion on how to manage retirement finances, without any knowledge of the details. With the information mentioned, how could one know that this person has not been maxing out contributions with 90% being of the tax-deferred variety? The balance of which is being used as savings/investment vehicle that is generating returns on top of an amount (up to $10k) to be withdrawn tax and penalty free for their first home purchase?

[Aredhel]

Originally Posted by Lux Hauler

Not necessarily. It is just generic opinion on how to manage retirement finances, without any knowledge of the details. With the information mentioned, how could one know that this person has not been maxing out contributions with 90% being of the tax-deferred variety? The balance of which is being used as savings/investment vehicle that is generating returns on top of an amount (up to $10k) to be withdrawn tax and penalty free for their first home purchase?

I don't, which is why I said a one-time withdrawal for a specific purpose might be OK. But let's face it: the majority of people aren't saving nearly enough for their retirement, so your scenario is possible but not likely.