The Roth Advantage Part 2: First Time Homebuyer

March 16, 2018

Dan Kresh FPQP™

There are ways for first time homebuyers to access some funds from retirement accounts without "penalty". Though you may be able to avoid an early withdrawal penalty, you will be lowering the amount in your retirement account. You would likely be purchasing your first home many years before you plan to retire, depleting your account when it has the most time to grow. This is a complicated decision. It is important to understand the differences between how you could access funds early from Traditional or Roth IRAs.

A first-time homebuyer can access up to $10,000 from either a Roth or Traditional IRA to contribute towards a down payment[i]. Any funds taken out from a Traditional IRA, for any reason, including a first-time home purchase would be taxed as ordinary income. The tax deferred nature of the Traditional IRA is its biggest advantage, so using funds from a Traditional IRA to help fund a home purchase will forfeit some of that benefit while shrinking your nest egg.
With a Roth IRA, you can take out contributions at any time for any reason without a tax consequence since it's already after-tax dollars[ii]. The Roth IRA owner can also access up to $10,000 of profit for a first-time home purchase, and if you have had the Roth for more than 5 years that would be tax free.[iii] You should NEVER consider a retirement fund an emergency fund, however; the fact remains that there are less barriers and penalties to accessing funds from a Roth IRA early than from a Traditional IRA.

Tapping into your retirement account to buy a home should not be your first choice, but it's nice to know what options could be on the table. You have the best chance of growing your nest egg if you contribute the maximum into your IRA for as long as possible. Taking funds out of your retirement account before retirement age, with or without penalty and or tax, means you will have a smaller principal to hopefully compound over time. Your retirement money will serve you best in retirement and should be invested in a well-diversified portfolio for the long haul. Any investment involves the risk of loss of principal but the more diverse your investments and the longer your time horizon the better your chance is to mitigate that risk.

If your income is at or approaching limits for contributing to a Roth IRA part 3 of this series will discuss a potential way for you to contribute to a Roth IRA using Roth conversions. It's never too early to start thinking about retirement. The earlier you start the more time you have for growth. You work hard for your money, we work hard so your money can work for you.

[i] IRS
[ii]Roth IRA Withdrawl
[iii]IRA To Buy A House

A Roth IRA distribution is qualified if you've had the account for at least five years and/or the distribution is made after you've reached age 59½, because of your total and permanent disability, in the event of your death or for first-time homebuyer expenses. Distributions made prior to age 59 1/2 may be subject to a federal income tax penalty. If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings.

You should always consult a tax professional and though this piece contains some tax information it should not be considered tax advice.

Protecting Important Documents - How we can help

As we all try to recover from the disaster that was Hurricane Sandy, and the effects of the Nor’easter that arrived on its heels, many of our friends have had their homes destroyed, from trees and debris that crashed into their homes, along with  flooding and power outages that are still unresolved.  Some  will be displaced for weeks to come.  Here at the office,  we have full electric power, internet and hot coffee and we are welcoming all.

We are all still processing the events of the past week, which would have been unimaginable, had we not seen them with our own eyes.  Once immediate problems are resolved, when homes and lives have been returned to normal, another problem will emerge – recovering lost or destroyed financial and personal documents.

Every home has filing cabinets where important documents are stored – insurance policies, tax returns, passports, banking records, etc.  We take for granted that these paper documents will be safe and that if  something is lost, that they can be easily replaced.  But replacing each and every document will  be difficult, if not impossible.  Do you remember each and every  insurance company that you have policies with?  For certain types of  insurance, particularly disability insurance,  having an original copy of the policy can make the difference between getting full benefits and protracted litigation.  

Sometimes paperwork lost in a flood or other disaster is not a problem immediately, and may even seem like an  afterthought, until you need it.

This past year we added a service for clients that should no longer be seen as a luxury, but a necessity and a smart solution to this problem.  We are able to offer a secure online vault where scanned copies of your most important documents, from insurance policies to photos of your grandchildren, can be uploaded and securely stored.  These files are password protected, using the latest in encrypted technology to ensure privacy and protection, and they are backed up with multiple layers of redundancy so that even if one of the systems fails, your documents are safe.

We are waiving all set up fees and access fees for a short period of time, and we will also provide help determining what documents should be  scanned and stored as well as two hours of scanning to any clients who come into the office with documents if you are unable to scan them yourself.  For instance, a copy of a will is not considered valid for probate but it is useful to have it scanned and protected. 

Information on the system is on our website at Integrated Account Aggregation.   This is a powerful solution for financial planning, but the value of safe and secure storage of your documents is an equally important service that we are pleased to be able to provide.

If you have questions and would like to discuss how this system works, please call me at 631-232-9170 or email This email address is being protected from spambots. You need JavaScript enabled to view it. .

Michael Kresh, CFP®



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