Does a withdrawal of $10000 for 1st home purchase count against Roth IRA basis?
TL;DR: No, it doesn't count against the Roth IRA basis. You can find out by looking at Form 8606 Part III, which is the part for distributions from Roth IRA. Line 19 is the sum of nonqualified distributions, plus qualified first-time homebuyer distributions. You would put $10000 here. Then you would subtract $10000 on line 20 (qualified first-time homebuyer expenses) to get $0 on line 21. You enter your basis on line 22, but since line 21 was 0, you stop. You do not subtract anything from your basis. If you take out more than $10000, then it's only the part over $10000 that is subtracted from your basis. From Schwab With a Roth, withdrawals of contributions are always tax-free because   you've already paid income taxes on that money. So are withdrawals of   earnings of up to $10,000 under the homebuyer exemption, assuming   you've had the Roth for five-plus years. But if you withdraw more than   $10,000 in earnings, that money will be subject to both ordinary   income taxes and the 10 percent penalty.
"Do you think that you had previously been over-saving for retirement? If so, then the first time home buyers exemption might be a good opportunity for you to reverse that error. On the other hand, if you think you have been saving the right amount, or too little, for retirement, then why would you undo that savings?  ""Because I can, under existing tax law"" seems like an inadequate answer. Remember that if you are anticipate to be maxing out your tax advantaged accounts in the near future, then such a distribution is a permanent loss of opportunity.  You can't get the money back in. Are you thinking more clearly now, or were you thinking more clearly back when you decided to contribute to an IRA rather than build up a down-payment fund in the first place?" "Because it is a Roth IRA (not traditional), you never pay penalties for withdrawing any amount up to your total contributions amount. This is because you are funding it with after tax money. But it sounds like your Roth had $11K in it and you zeroed it out? If you were less than 59.5 years old at the time you made the withdrawal, then if you did not return anything to the account, then you would pay tax on the 6K as income this year at your normal tax rate, plus an additional 10% penalty on that 6K ($600). The 5K in contributions is not taxable. Now, since it's been more than 60 days since you withdrew the money, you cannot put the 6K in earnings back in without paying the penalty, however, you can still contribute $5500 per year (or $6500 if you're over 50). So, you can put back $5500 and then you would only have to pay tax + 10% on the $500 difference. Update: I would recommend talking to an accountant. The fact that you intended to buy a house might provide a mechanism for getting the money back in if you wish. If this was your first house or you have not owned a home in the last 2 years, then you would be considered a ""first-time homebuyer"" and there is a special exception allowing you to remove 10K without penalty. If you end up not purchasing the home, you have 120 days to contribute those funds back in (treated as a rollover- thank you littleadv for the link to this). As for the final 1K overage, I believe you can count that towards your $5500/yr contribution when you put the entire amount back. Lastly, after digging into this, you have hit so many edge cases with your scenario (6K in earnings being between 5500 for under 50 and 6500 for over 50, it's been 70 days which is between the 60 day normal cutoff and the 120 day extended cutoff for home purchase falling through, and 11K total being just over the 10K cutoff for the same), that I'm starting to wonder if this is some sort of contrived case for an accounting exam!?" There are a couple reasons for having a Traditional or Roth IRA in addition to a 401(k) program in general, starting with the Traditional IRA: With regards to the Roth IRA: Also, both the Traditional and Roth IRA allow you to make a $10,000 withdraw as a first time home buyer for the purposes of buying a home. This is much more difficult with the 401(k) and generally you end up having to take a loan against the 401(k) instead. So even if you can't take advantage of the tax deductions from contributions to a Traditional IRA, there are still good reasons to have one around. Unless you plan on staying with the same company for your entire career (and even if you do, they may have other plans) the Traditional IRA tends to be a much better place to park the funds from the 401(k) than just rolling them over to a new employer.  Also, don't forget that just because you can't take deductions for the income doesn't mean that you might not need the income that savings now will bring you in retirement. If you use a retirement savings calculator is it saying that you need to be saving more than your current monthly 401(k) contributions? Then odds are pretty good that you also need to be adding additional savings and an IRA is a good location to put those assets because of the other benefits that they confer. Also, some people don't have the fiscal discipline to not use the money when it isn't hard to get to (i.e. regular savings or investment account) and as such it also helps to ensure you aren't going to go and spend the money unless you really need it. "Yes, you can withdraw the excess contribution (or actually any amount you contributed for 2015, not necessarily an excess), plus earnings from that withdrawn contribution, by April 15, and not incur a penalty for the excess contribution. It would count as if you did not contribute that amount at all. The earnings would be taxed as regular income, and the earnings may incur a penalty. Yes, you can ""recharacterize"" (all or part of) your Roth IRA contribution as a Traditional IRA contribution (or vice versa) by April 15. Recharacterization means you pretend the contribution was originally made as a Traditional IRA contribution, and did not involve Roth IRA at all. (""Conversion"" is something very different and can only go from Traditional to Roth, not the other way around.) You are likely not eligible to deduct that Traditional IRA contribution, so you will have to report it as a non-deductible Traditional IRA contribution on a 2015 Form 8606 Part 1. Note that after you've recharacterized it as a Traditional IRA contribution, you can also then ""convert"" that Traditional IRA money to a Roth IRA if you want, achieving the same state as what you have now. Contributing to a Traditional IRA and then converting to a Roth IRA is called a ""backdoor Roth IRA contribution""; if you don't have any existing pre-tax money in Traditional IRA or other IRAs, then this achieves the same as a regular Roth IRA contribution except with no income limits. When you convert, the earnings you have made since contributing will be taxed as income. If you had done the backdoor originally to begin with (convert right after contributing), you would have had no earnings in between and no tax to pay, but since if you do the conversion now you have waited so long, you are disadvantaged by having to pay tax on the earnings in between. If you convert, you will have to fill out Form 8606 Part 2 for the year you convert (2016)." If the IRA is costing you $100 a year, you should almost certainly transfer it to a cheaper provider, regardless of whether you're going to withdraw anything.  You can transfer the IRA to another provider that doesn't charge you the fees.  Or you can convert it to Roth and combine it with your existing Roth.  Either way, you will keep all the money, and save $100 per year in the future. If you want to take money out of your retirement accounts, you should take it out of your Roth IRA, because you can withdraw contributions (i.e., up to the amount you contributed) from the Roth without tax or penalty. Whether you should withdraw anything from your retirement accounts is a different question.  If you're already maxing out your Roth IRA, and you have sufficient retirement savings, you could just instead plow that $5500 into your student loans.  (If you can afford it, of course, it'd be better to just pay the $7500 from your income and still contribute to the retirement accounts.)  There's no reason to withdraw from retirement accounts to pay loans when you could just divert current income for that purpose instead. With a Roth IRA, you can withdraw the contributions at any time without penalty as long as you don't withdraw the earnings/interest. There are some circumstances where you can withdraw the earnings such as disability (and maybe first home). Also, the Roth IRA doesn't need to go through your employer and I wouldn't do it through your employer. I have mine setup through Fidelity though I'm not sure if they have any guaranteed 3% return unless it was a CD. All of mine is in stocks. Your wife could also setup a Roth IRA so over 2 years, you could contribute $20,000. If I was you, I would just max out any 403-b matches (which you surely are at 25% of gross income) and then save my down payment money in a normal money market/savings account. You are doing good contributing almost 25% to the 403-b. There are also some income limitations on Roth IRAs. I believe for a married couple, it is $160k. Lets do the math (assuming a lot of stuff, like your interest rates and that you make the contribution at the beginning of the year, also your tax bracket at the withdrawal time frame.) 1.) Beginning of year 1 Roth Option $5k contribution Non Roth Option $5k contribution 2.) Beginning of year 2 Roth Option $5000 + $150 interest + 5K contribution = $10150 Non Roth Option $5000 + $75 interest + 5K contribution = $10075 3.) End of year 2 Buy a house! yay! Roth Option---before withdrawal account value = 10150+10150*.03=10454.5 after withdrawl (assuming 38% tax on earnings withdrawal (10%penalty + 28% income tax estimate.) = 10327.17 Non Roth Option = 10 226.125 So you are talking about a significant amount of paperwork to either 1.) Net yourself $100 toward the purchase 2.) Cost yourself $226 on the purchase but have $454.50 in your roth ira. I am not sure I would do that, but it might be worth it. As far as I know, there is no direct equivalent. An IRA is subject to many rules.  Not only are there early withdrawal penalties, but the ability to deduct contributions to an IRA phases out with one's income level.  Qualified withdrawals from an IRA won't have penalties, but they will be taxed as income.  Contributions to a Roth IRA can be made post-tax and the resulting gains will be tax free, but they cannot be withdrawn early. Another tax-deductable investment is a 529 plan.  These can be withdrawn from at any time, but there is a penalty if the money is not used for educational purposes. A 401K or similar employer-sponsored fund is made with pre-tax dollars unless it is designated as a Roth 401K.  These plans also require money to be withdrawn specifically for retirement, with a 10% penalty for early withdrawal.  Qualifying withdrawals from a regular retirement plan are taxed as income, those from a Roth plan are not (as with an IRA). Money can be made harder to get at by investing in all of the types of funds you can invest in using an IRA through the same brokers under a different type of account, but the contribution will be made with post-tax, non-deductable dollars and the gains will be taxed. Does the 5 year rule apply on the After-tax 401k -> Roth 401k -> Roth   IRA conversion of the 20000 (including 10000 earnings that was   originally pre-tax)? No. The after-tax amounts are not subject to the 5 years rule. The earnings are. How does this affect Roth IRA withdrawal ordering rules with respect   to the taxable portion of a single conversion being withdrawn before   the non-taxable portion? Taxable portion first until exhausted. To better understand how it works, you need to understand the rationale behind the 5-year rule. Consider you have $100K in your IRA (traditional) and you want to take it out. Just withdrawing it would trigger a 10K statutory penalty, on top of the taxes due. But, you can use the backdoor Roth IRA, right? So convert the 100K, and then it becomes after-tax contribution to Roth IRA, and can be withdrawn with no penalty. One form filled ad 10K saved. To block this loophole, here comes the 5 years rule: you cannot withdraw after-tax amounts for at least 5 years without penalty, if the source was taxable conversion. Thus, in order to avoid the 10K penalty in the above situation, you have a 5-year cooling period, which makes the loophole useless for most cases. However amounts that are after tax can be withdrawn without penalty already, even from the traditional IRA, so there's no need in the 5 years cooling period. The withdrawal attribution is in this order: Roth IRA rollovers are sourced to the origin. E.g.: if you converted $100 to the Roth IRA at firm X and then a year later rolled it over to firm Y - it doesn't affect anything and the clock is ticking from the original date of the conversion at firm X. 5-year period applies to each conversion/rollover from a qualified retirement plan (see here). Distributions are applied to the conversions in FIFO order, so in one distribution, depending on the amounts, you may hit several different incoming conversions. The 5 years should be check on each of them, and the penalty applied on the amounts attributable to those that don't have enough time. 5-year period for contributions applies starting from the beginning of the first year of the first contribution that established your Roth IRA plan. The penalty applies to the amounts that were included in your gross income when conversion occurred, i.e.: doesn't apply on the amounts converted from after-tax sources. Note the difference from the traditional IRA - distributions from pre-tax sources are prorated between the non-deductible (basis) amounts and the deductible/earnings amounts (taxable). That is why the taxable amounts are first in the ordering of the distributions. Take some of the commentary on home buying forums with a grain of salt. I too have read some of the commentary on these forums such as myFICO, Trulia, or Zillow and rarely is the right advice given or proper followup done. Typical 401k withdrawals for home purchase would not be considered a hardship. However, most employer 401k plans will allow you to take a loan for 401k as long as you provide suitable documentation: HUD-1 statement, Real Estate Contract, Good Faith Estimate, or some other form of suitable documentation as described by the plan administrator.  For instance, I just took a 401k loan to pay for closing costs and I had to provide only the real estate contract. Could I not follow through with the contract? Sure, but what if I am found out for fraud? Then the plan administrator would probably end up turning the distribution into a taxable distribution. I wouldn't go to jail in this hypothetical situation - I am only stealing from myself. But the law states that certain loan situations are not liable for tax as long as that situation still exists. In the home loan situation, my employer allows for a low interest, 10 year loan. My employer also allows for a pre-approved loan for any purpose. This would be a low interest, 5 year loan.  There is also the option to not do a loan at all. But normally that is only allowed after you have exhausted all your loan options and the government makes it intentionally harsh (30% penalty at least) to discourage people from dumping their tax free haven 401k accounts. That all being said, many plans offer no prepayment penalty. So like my employer has for us, I can pay it all back in full whenever I want or make micropayments every month. Otherwise, it comes out of my pay stub biweekly. So if it were to fall through, I could just put it all back like it never happened. Though with my plan, there is a cooling off period of 7 days before I can take another loan. Keep in mind that if you leave your employer then the full amount becomes a taxable distribution unless you pay it back within a certain period of time after leaving the employer.  Whether this fits your financial situation is up to you, but a loan is definitely preferred over a partial or full withdrawal since you are paying yourself back for your rightly earned retirement which is just as important. If it is your primary residence and you lived there continuously and for more than 2 years out of the last 5 - then you can exclude the gain under the IRC Sec. 121. In this case, you'll pay no taxes on your gain. If the property has been a rental or you haven't lived there long enough, the rules become more complicated but you may still be able to exclude some portion of the gain, even all of it, depends on the situation. So it doesn't look like 1031 exchange is good for you here, you don't want to carry excluded gain - you want to recognize it and get the tax benefit. However, refinancing after purchase with cash-out money affects the deductability of the loan interest. You can only deduct interest on money used to buy, not cash-out portion. I believe there's a period (60 days IIRC) during which you can do the cash-out refinance and still count it as purchase money, but check with a licensed tax advier (EA/CPA licensed in your State). One thing to keep in mind is that with Roth accounts, there are different withdrawal considerations based on your contributions. For example, you can withdraw Roth IRA contributions whenever you want in the future.  However this really has nothing to do with your cost basis and purely to do with the contribution amount vs balance. In a year with no income, the best advice is to convert existing IRA money to Roth. This lets you take advantage of the 'zero' bracket, the combination of your exemption and standard deduction. This adds to $10,300 for a single person.  Other than that, if you are determined to take the money out, just do it. There would be a 10% penalty of the growth, but the original deposit comes out tax free anyway.  Edit - There's a rule that if you sell your entire Roth account (i.e. all Roth accounts, you can't pick one of a few) and have a loss, you can take that loss. (Per Dilip's comment, this strategy is pretty moot, it's not a loss taken against other income as a stock loss would potentially be)) "In a Roth IRA scenario, this $5,000 would be reduced to $3,750 if we assume a (nice and round) 25% tax rate. For the Traditional IRA, the full $5,000 would be invested. No, that's not how it works.  Taxes aren't removed from your Roth account.  You'll have $5,000 invested either way.  The difference is that you'll have a tax deduction if you invest in a traditional IRA, but not a Roth. So you'll ""save"" $1,250 in taxes up front if you invest in a traditional IRA versus a Roth. The flip side is when you withdraw the money.  Since you've already paid tax on the Roth investment, and it grows tax free, you'll pay no tax when you withdraw it.  But you'll pay tax on the investment and the gains when you withdraw from a traditional IRA.  Using your numbers, you'd pay tax on $2.2MM from the traditional IRA, but NO TAX on $2.2MM from the Roth. At that point, you've saved over $500,000 in taxes. Now if you invested the tax savings from the traditional IRA and it earned the same amount, then yes, you'd end up in the same place in the end, provided you have the same marginal tax rate.  But I suspect that most don't invest that savings, and if you withdraw significant amount, you'll likely move into higher tax brackets. In your example, suppose you only had $3,750 of ""discretionary"" income that you could put toward retirement.  You could put $5,000 in a traditional IRA (since you'll get a $1,250 tax deduction), or $3,750 in a Roth.  Then your math works out the same.  If you invest the same amount in either, though, the math on the Roth is a no-brainer." "I'd be curious to understand where you live, with a condo costing nearly 3X the average home price in the US.  That said, if you are hell bent on this, money is loosening up. I am a real estate agent, and part of my distaste for the industry is the fact that it is the near opposite of financial fiduciary. I am responsible to be truthful and act in the best interest of my client. I am specifically not allowed to offer tax or financial advice. A client that told me she had a prequalification, only later shared that she's using a 3% down, FHA mortgage, and from what I see, getting in over her head.  In your case, look at the requirements for an FHA loan. I recommend 20% down, and the payment be less than 28% (Principal, interest, property tax) of monthly gross. The FHA allows as little as 3% down, with payment as high as 31%. In your case, $15K is 3%, and, depending on the other expenses for the house, the payment should be manageable.  If your 401(k) accounts offer matching, I'd deposit the amount to capture the match, no more, no less. Let me illustrate the power of matching - say the match is on your first $10,000 total, between the 2 of you. $10,000 deposited, is $20,000 in your retirement account, and you are just out of pocket $7500, as that's your net after tax. Now, the $20K in the account allows you to borrow half, $10,000 at a favorable rate for a 10 year payback. So, to your question of raiding your retirement accounts, I'd advise the opposite. A $10K withdrawal will cost $2500 in tax and $1000 penalty. Net $6500. Better to take the IRA, transfer it to the 401(k), and borrow 50%. Your $40K across the accounts will let you borrow $20K and keep the retirement savings going.  Last - I respect the answers that say ""don't,"" they are actually the right answers. Mine only applies if you won't listen to them. In effect, you've asked where to buy rope, and I'm just letting you know where the store is. It's the banks who are happy to sell you the rope to hang yourself."