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.

Why deducting SALT may be good for your financial health


November 29th, 2017

Michael D. Kresh CFP® RF

Dan Kresh FPQP

Limiting salt in your diet may be good for your body, but losing the ability to deduct SALT from your taxes may be bad for your wallet.  State and Local Tax (SALT) deductions enable millions of Americans to itemize their deductions and take home more of their money.  The Senate and House want to limit or eliminate the deduction of SALT from your taxes which could result in many middle-class earners pocketing less of their paycheck. 

Your federal tax bill is based on your adjusted gross income (AGI). Without the ability to deduct SALT, many people who currently itemize their deductions will just use the standard deduction.  Though the standard deduction will be higher, and the tax brackets would be lower, this will mean a higher adjusted gross income for many.  If your AGI goes up enough, you will take home less. 

The tax reform proposals from both the House and the Senate are currently looking at killing the deduction for state income, property and sales taxes. Hey, wait a minute, will I be punished if I live in a state will high SALT[ii]? In fact, according to the nonpartisan Joint Committee on Taxation “Congressional analysts are estimating that the Republican Senate tax bill would increase taxes in 2019 for some 13.8 million U.S. households earning less than $200,000 a year.”[iii]

According to the Daily News, in New York “A whopping 3.2 million people claim the deduction statewide, with 85% of those residents make less than $200,000 a year...”[iv] The Washington Post reported also reported, “what has been widely overlooked is that residents of well-to-do suburbs in red and blue states across the nation — including here, just north of Atlanta — could find themselves in a similar tax squeeze.”[v] So as we have seen above, nearly 14 million taxpayers nationwide making less than $200,000 could see their taxes increase. So where is the middle-class tax break that we were promised?

Let us look at three hypothetical taxpayers based upon our client mix.[vi]


Income         Property tax    State income tax       AGI 2017             AGI 2018   Projected Federal Tax increase%

$200,000     $30,000             $12,500                      $143,400            $176,000                    24%   

$110,000      $18,500            $7,250                        $69,437               $86,000                     14%   

   $75,000      $12500           $5,500                         $41,900               $51,000                      7%

As you can see from the illustrations above, if you are a homeowner in New York, significant increases in your taxes may be a possible outcome from the Tax bill.  Most New Yorkers making $200K or less would probably not consider themselves wealthy, yet here we are with rising taxes. Although we are not sure that this bill will pass, there is still time to talk with your tax advisors to see if you can do anything before Dec,31 to soften next year’s tax blow. 

Though this article contains tax information it should not be considered tax advice.  We recommend consulting a tax professional and would be happy to facilitate a meeting with you and your tax professional to navigate the changing landscape together.



[i] State and Local Taxes

[ii] Senate Tax Plan Diverges From House Version, Highlighting Political Pressures New York Times NOV. 9, 2017

[iii] 11/13/2017

[iv] GOP tax plan would deal huge blow to millions of New Yorkers by ending state, local property tax deductibility NY

[v] The Washington Post 11/09/2017

[vi] The calculations above deal mostly with property and state tax issues and are based upon the Senate’s tax tables. Because of the loss of State and Local Tax deductions homeowners may only be able use standard deduction and therefore loose other itemized deduction. There are many more factors to review. 

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