How to Use a 401(k) or IRA to Buy a Home

Updated September 7, 2026

Yes, you can use retirement savings to help buy a home—even before age 59½. A 401(k) loan, a qualifying IRA withdrawal, or money you contributed to a Roth IRA may help cover your down payment and closing costs. The rules differ, so start by identifying your account type.

If your savings are mostly in retirement accounts, that does not automatically put homeownership out of reach. Here is how the main options work.

Using a 401(k) Loan for a Down Payment

If your employer’s plan offers loans, you can borrow against your vested balance and repay the account with interest. A loan that follows the IRS rules generally is not a taxable withdrawal.

• Borrowing limit: generally the lesser of $50,000 or half your vested balance. A small-balance exception may apply; recent or outstanding loans can reduce the amount available.
• Repayment: generally within five years, although a loan to purchase your primary residence may allow longer. Your plan sets the available terms.
• Before applying: confirm the payment, fees, processing time, and what happens if you leave your job. A default can create taxes and a possible early-distribution penalty.

Example: With an $80,000 vested balance and no recent plan loans, the general limit is $40,000—not $50,000. Your plan may offer less, and you only need to borrow what fits your purchase and budget. IRS plan-loan rules.

Using an IRA to Buy Your First Home

The IRA first-time-homebuyer exception can remove the 10% additional federal tax on up to $10,000 over your lifetime. It does not remove ordinary income tax on previously untaxed traditional IRA funds.

• You—and your spouse, if married—generally cannot have owned an interest in a main home during the two years before acquisition. For this rule, acquisition generally means signing the purchase contract or starting construction.
• Use the distribution for qualified purchase, construction, or closing costs within 120 days after receiving it.
• The $10,000 limit is per person, not per account or purchase. Two eligible spouses can each use their remaining exception.

See the IRS first-home requirements before withdrawing funds.

Can You Use a Roth IRA?

Regular Roth IRA contributions generally come out first, free of federal income tax and early-distribution tax. Earnings and conversions have different rules.

Qualifying first-home earnings within the $10,000 lifetime limit can be tax-free if the Roth IRA’s five-tax-year requirement is met. Without that holding period, qualifying earnings may avoid the 10% additional tax but still be taxable. Have your tax adviser verify contribution records, previous withdrawals, and any conversions. IRS Roth IRA distribution rules.

What About a 401(k) Hardship Withdrawal?

Some plans permit hardship withdrawals for a primary-home purchase. Unlike a loan, the money is not repaid to the plan. Previously untaxed funds generally create taxable income, and an early withdrawal may also face the 10% additional tax.

The first-time-homebuyer penalty exception applies to IRAs—not 401(k) withdrawals. Permission to take a hardship withdrawal is not the same as a tax exemption. See the IRS hardship guidance and early-distribution exception chart.

How to Put the Funds Into Your Homebuying Plan

1. Start with mortgage preapproval. Let’s estimate your down payment, closing costs, and money left after closing.
2. Confirm access and taxes. Ask your plan administrator what is available and your tax adviser what you would actually keep.
3. Coordinate timing and documentation. Before moving funds, ask your lender which account statements, loan terms, and transfer records are needed.
4. Compare alternatives. Review home purchase loan options and down payment assistance before deciding how much retirement money to use.

Include any retirement-loan payment in your monthly budget. Also consider the investment growth you could give up and how you will rebuild savings after buying.

Common Questions

Can I borrow from an IRA like a 401(k)?

No. IRAs do not allow participant loans. An IRA withdrawal follows different rules from a workplace retirement-plan loan.

Does using retirement money guarantee mortgage approval?

No. It can help with funds to close, but your lender still reviews your income, credit, debts, property, and loan-program requirements.

Let’s Compare Your Options

I help buyers across San Luis Obispo County and California understand how their available funds fit a home purchase. Before you cash out retirement savings, let’s compare the loan options and estimated cash needed to close.

Book a Free Mortgage Consultation or call (805) 540-9909.

This guide covers general federal rules, not individual tax or investment advice. Confirm plan requirements and federal and state tax consequences with your administrator and tax adviser before moving retirement funds.