The Roth IRA also has some other good things going for it. I especially like the fact that after 5 years, you could withdraw the money you put in (not the profits) without penaltyActually, that's not entirely true. With a Roth, you can withdrawal your contributions any time, because they've already been taxed. There's some confusion between the Roth and the Traditional. With a Roth, first time homebuyers can pull out $10,000 in profits penalty free and tax-free if the money has been in the Roth IRA for at least five tax years, not if the Roth has been open for 5 years. So EditorialWe, in your hypothetical situation, only that first $2000 could be pulled out if it were a Traditional IRA. If it were a Roth, whatever you put in (your contributions) is fair game. Early distributions from a Traditional IRA used to pay for a first time home purchase (up to $10,000) will not be subject to the 10% tax penalty, but will be subject to ordinary income taxes.HTHBmF
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