House downpayment. Roth IRA vs Brokerage

[spaniard999]

Hi everyone,

I'm buying a property and here I have a dilemma.
I can withdraw the contributions I made from the Roth IRA to pay for it, at no penalty but then I dont get that money to grow for free.
OR I can withdraw from my brokerage.
How would my brokerage money be taxed if I just take out contributions.
I will add numbers as a reference.

Brokerage. Total 210k of which 140 was original investment and 70K of gains. 20K of this money was put into the account more than 1 year ago (long term investment)
IRA I can withdraw 20K from contributions I made another years, with no penalty.

Here is the dilemma, do I take all from my brokerage and pay the taxes on whatever comes from it, or do half and half, reducing the taxes I have to pay but taking money from Roth IRA which can grow free.

[Sibley]

Your key words are capital gain or capital loss. You would pay taxes on any gain/loss from selling investments. Interest and dividends are taxed every year, regardless if you sell or hold the investments.

[yachi]

How would my brokerage money be taxed if I just take out contributions.

This is not a thing for brokerage accounts.

There are a number of differences between IRA and brokerage accounts:

A brokerage account is subject to tax anytime a dividend is paid, or stock is sold (for a gain) even if the money remains in the brokerage account.

Cash in a brokerage account can be removed at-will without a taxable event occurring.

How long money has been in a brokerage account is irrelevant for taxes.  What matters is only when an investment itself was purchased and sold.

Here's an example:

If you spent $10K two years ago on 100 shares of AwesomeCo, they doubled and you sold them today for $20K, you will have made $10K, and that $10K will be subject to long term capital gains tax.  If instead you sold only 50 shares for $10K, you will have made $5k, and that $5k will be subject to long term capital gains tax.

If you had a bad investment that you bought 1.5 years ago for $10K that is now selling for $5K, you could sell that bad investment, and the loss could offset your gain in AwesomeCo.  If you sold 50 shares of AwesomeCo and all of your bad investment, your overall gain for the year would be $0 and you would owe capital gains tax on $0.

[zolotiyeruki]

At first glance, I'd lean towards pulling it from your taxable accounts, so you can maximize that sweet, sweet tax-free Roth growth.

But if you're looking to optimize, it will depend on how much you have in taxable vs tax-deferred vs Roth accounts, and whether you plan to retire early.  If your taxable accounts are small, it might be better to pull from your Roth IRA so that your taxable accounts can continue to grow, to prepare for a Roth Pipeline.

[bryan995]

I think the best-path forward depends on how long it will take you to pay it back.

For instance (not saying its right, but it worked for us), we took a $50k 401k loan to hit our downpayment/cash needed for a purchase + landscaping etc (new construction).
Paid it back in full ~6 months later.  It allowed us to get settled a bit sooner, and as it worked out, it got us into the market just prior to the covid housing explosion (got lucky for sure)

I'd lean towards avoiding liquidating your taxable account and paying the taxes due, assuming of course this is only a temporary loan. 
If it is going to take multiple years to pay it back, then I'd question whether or not buying a home is even the right move.