Dear Carrie: If I want to buy a house, could I dip into my individual retirement account for part of the down payment? Would I have to pay a penalty? — A Reader

Dear Reader: Pulling together enough money for a down payment on a home purchase can be a daunting challenge for even the most conscientious of savers. So I completely understand the temptation to dip into an IRA to make your homeownership dream come true.

And yes, the Internal Revenue Service does allow penalty-free withdrawals of a limited amount of IRA funds for first-time homebuyers. However, as enticing as it appears, taking that withdrawal comes with certain caveats that you need to carefully consider — not only to avoid taxes and penalties but, perhaps more importantly, to make sure you're not jeopardizing your future financial security.

I'm always a little uncomfortable when people want to pull money out of their retirement accounts early for whatever reason, even if the IRS thinks it's OK. But before we get into those concerns, let's talk about the facts.

Who's Considered a 'First-time' Homebuyer

Though IRA withdrawals before age 59 1/2 usually trigger a 10 percent penalty, there are exceptions — including the first-time homebuyer exemption. Making it even more tempting, the definition of first-time homebuyer is broader than it sounds.

It applies to your very first home purchase, of course, but it also applies if you or your spouse hasn't owned a principal residence at any time during the past two years. The operating word here is "principal," because even if you've owned a vacation home during that time, the exemption can still apply.

Also, you yourself don't have to be the homebuyer. You can also qualify for the exemption if you're helping your spouse, child, grandchild or parent buy a home.

What You Can Withdraw

What's not so appealing is the limited amount you can withdraw. The maximum penalty-free withdrawal from an IRA under the homebuyer exemption is $10,000. Though that's a good chunk of money, it may not make much of a dent in your down payment if you live in an area where property values are high.

That $10,000 limit is an absolute if you have a traditional IRA. However, if you have a Roth IRA that you've held for at least five years, you may have a little more leeway. That's because you can always withdraw contributions to a Roth tax- and penalty-free. But if you withdraw earnings from your Roth, you're subject to the $10,000 limit.

The good news is that you and your spouse can qualify individually for the homebuyer exemption, potentially doubling the amount of money you can withdraw.

Taxes You May Have to Pay

You may be thinking that all this is very generous of the IRS, but it's not that simple. The homebuyer exemption is penalty-free, but not necessarily tax-free. Again, the rules are different for traditional IRAs and Roth IRAs.

With a traditional IRA, withdrawals are subject to ordinary income tax, no matter what. So if you're in the 25 percent tax bracket, your $10,000 withdrawal for a down payment is really only $7,500.

With a Roth, withdrawals of contributions are always tax-free because you've already paid income taxes on that money. So are withdrawals of earnings of up to $10,000 under the homebuyer exemption, assuming you've had the Roth for five-plus years. But if you withdraw more than $10,000 in earnings, that money will be subject to both ordinary income taxes and the 10 percent penalty.

As you can see, it can get complicated. If you've converted assets from a traditional IRA to a Roth, there's even more to consider. Best to consult your tax adviser.

What You Can Use the Money for — and When

Once the money is in your hands, the IRS wants to make sure you use it for the purpose intended. So the funds must be used for what is defined as qualified acquisition costs — the cost of buying, building or rebuilding a home, plus any usual or reasonable settlement, financing or other closing costs.

Sounds fair enough. But there's more. Those funds must be used within 120 days of receiving the distribution.

The Bigger Retirement Savings Question

Being able to take money from your IRA for a down payment is one thing; whether it's the right thing for you is another. I caution you to think carefully. Raiding your retirement account can have long-term consequences. You're losing the tax-free growth over time, and you're depleting something that you've worked hard to save. Look at the big picture, and talk to your financial adviser. Make sure you're doing the right thing in terms of not only present taxes and penalties but also your future security.

Carrie Schwab-Pomerantz, Certified Financial Planner, is president of the Charles Schwab Foundation and author of "The Charles Schwab Guide to Finances After Fifty," available in bookstores nationwide. You can email Carrie at [email protected]. This column is no substitute for individualized tax, legal or investment advice. Where specific advice is necessary or appropriate, consult with a qualified tax adviser, CPA, financial planner or investment manager. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.