What types of accounts should I draw from to pay for a Down Payment on a House?

Question

I have an IRA, a CD and a Checking account. My IRA is making less than my CD at this point, with some more financial management, that could change I suppose. If I draw from my IRA I will have to pay the taxes. If I draw from my CD early I would get penalized for the interest earned. I'd rather not drain my entire checking account either... For example you have your IRA has $8,000, your CD has 10,000 and your checking account has $10,000. Your down payment required is $15,000. What would you do?

Update:

It is actually a SIMPLE IRA (and I've had it for more than 2 years). This is my fist home actually.

Update 2:

It is actually a SIMPLE IRA (and I've had it for more than 2 years). This is my fist home.

Anonymous · Accepted Answer

If you have a roth ira and you are buying your first home there is a special little rule that allows you to take that money out before the 5 year period without the 10% penalty.  You'll just need a special tax form.
But it sounds like this is not your first home.

Your regular (tax-deductible) ira will be hit with your current tax rate and a 10% penalty.
Don't do this.  You'll regret it when the markets pick up and you'll regret it even more in your retirement.
Take it out of the cd and checking account.
Chances are you will only lose about 6 months interest if it's held at a bank.
If held at a brokerage, you could actually sell that cd at a profit right now.

If that is a tax deductible regular ira, that 8,000 could easily  be worth less than 5,000.
If the company does not hold the taxes and penalty for you, you will have to keep at least $3,000 in a special savings to pay the tax man on April 2011.
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What types of accounts should I draw from to pay for a Down Payment on a House?

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