May 15, 2013
The Roth IRA can be used as a place to save for a home purchase? How?
The Roth IRA can be used as a place to save for a home purchase? How?
You can use the Roth IRA as a down payment account for your home purchase. Your money will go into the account after tax. You can go to Vanguard to open an account. Since the Target Retirement Fund only need a minimum of $1,000 to open an account, this is a good place for many. When using the Target Retirement Funds, you would select the Target Retirement Number that fits your timeline to buying a home.
Well done, Katherine. Please allow me to add to the discussion. The contributions you make to a Roth IRA go in after taxes. You are allowed to take those contributions out anytime in the future without paying taxes or penalties. You can take out up to $10,000 of earnings (money you made off your contributions) for a first time home purchase down payment.
Just as Katherine stated, selecting a Target Date Retirement Fund at Vanguard can be a very effective way to go about doing this. You simply select the closest date in which you believe you will need the money and then start socking money away each month and each year through automatic payments out of your bank account. Easy peasy!
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