Roth IRA to save for possible downpayment?

[naners]

Hello all! I'm considering buying an apartment in Brooklyn NY in a few years. According to the NYTimes rent vs. buy calculator, the math on rent vs. buy in my area hovers around the break-even point or in favor of buying. I'd be starting from scratch to save up a 20% downpayment + closing costs, which I can probably do in 3-4 years.

But: I'm just past 30, and in four years my life might have changed enough that buying an apartment no longer makes sense. So what I'd like to do is save the money for the downpayment in such a way that it would be easy to turn it into another type of investment if I decide not to buy.

Here's what I was thinking: Save as much as possible of the dowpayment in a low-risk Roth IRA (like a savings account or CD). If I decide to buy, I can withdraw the contributions penalty-free, plus an extra 10K under the provision for first-time homebuyers. If I decide not to buy, I can transfer the funds into a longer-term, higher risk investment and still benefit from tax-free growth. If I didn't go the Roth route, I'm stuck with nearly $60K just sitting around; as I understand it, it's not easy to put a big chunk of cash into a tax-advantaged account at one time.

Does this make sense? Am I overcomplicating or missing anything? I'm pretty new to the US so the rules on what you can and cannot do with retirement investments are a bit murky to me.

Thanks! Let me know if you need more information.

[simonsez]

If you are withdrawing 4 years' worth of contribution + 10k for the new home allowance you mentioned, isn't that only (5500*4)+10000=32000?  32k gets you 20% on an apartment in Brooklyn (160k apartment/condo)?  Or do you plan to have other accessible funds besides the Roth IRA contributions to use for the down payment?

[Cromacster]

I thought about doing this at one point.  The big drawback to doing this is you lose so much in potential (tax free) earnings by withdrawing all that money, especially when you can only deposit 5500 a year.  40 years is a lot of potential for that money (again, tax free).

It would be my advice to contribute the max to the Roth and leave it there. Try to save for your down payment elsewhere.

[sherr]

I thought about doing this at one point.  The big drawback to doing this is you lose so much in potential (tax free) earnings by withdrawing all that money, especially when you can only deposit 5500 a year.  40 years is a lot of potential for that money (again, tax free).

It would be my advice to contribute the max to the Roth and leave it there. Try to save for your down payment elsewhere.

+1. There's nothing wrong with your plan naners, but usually it's better to leave the money in your Roth IRA long term and save for near-future purchases somewhere else.

[naners]

Thanks for the replies everyone!

Simonsez: Yes, it's only about half the amount needed for the apartments I'd be interested in. So I'd be saving additional funds in a taxable account.

Crocmaster & sherr: I fully realize that it's a sacrifice in interest earnings. But I have only a single income that is moderate for a high cost of living area, so I can't both save for the downpayment in a short period AND make retirement contributions**. My thoughts on buying were that all else being equal, in 4 years my rent will have gone up enough to push the balance in favor of buying. Buying sooner rather than later also reduces the amount of gentrification-related price increases I have to eat. If/when I buy, I would then switch over the money that was going toward the downpayment to retirement investing.

** I mean I can't save beyond my employer's contribution of 8% and the 4.5% I'm required to contribute; so it's not like there's no retirement savings happening

***Also relevant information: I would consider myself "moderately Mustachian". I save about 40% of my after tax income. For me as a single person, that's the right balance between lifestyle choices and eventual retirement. If I happen to meet and marry another Mustachian who brings along a second income, I would happily aim for MMM-level savings. Mustachian men of NYC, watch out :)

[mpbaker22]

I thought about doing this at one point.  The big drawback to doing this is you lose so much in potential (tax free) earnings by withdrawing all that money, especially when you can only deposit 5500 a year.  40 years is a lot of potential for that money (again, tax free).

It would be my advice to contribute the max to the Roth and leave it there. Try to save for your down payment elsewhere.

+1. There's nothing wrong with your plan naners, but usually it's better to leave the money in your Roth IRA long term and save for near-future purchases somewhere else.

If you aren't otherwise making IRA contributions, make them, but use up all your other accounts for a down-payment before withdrawing from the roth.  It's better to use a roth than taxable, but it's better to pull your downpayment from the taxable, if possible.

[Rebecca Stapler]

I thought about doing this at one point.  The big drawback to doing this is you lose so much in potential (tax free) earnings by withdrawing all that money, especially when you can only deposit 5500 a year.  40 years is a lot of potential for that money (again, tax free).

It would be my advice to contribute the max to the Roth and leave it there. Try to save for your down payment elsewhere.

+1. There's nothing wrong with your plan naners, but usually it's better to leave the money in your Roth IRA long term and save for near-future purchases somewhere else.

If you aren't otherwise making IRA contributions, make them, but use up all your other accounts for a down-payment before withdrawing from the roth.  It's better to use a roth than taxable, but it's better to pull your downpayment from the taxable, if possible.

+1