What it is:
A first-time homebuyer an individual or couple purchasing a home for the first time. The IRS also considers someone who has not owned a home in the past two years to be a first-time homebuyer.
How it works/Example:
An individual or couple who holds an IRA or Roth IRA and is purchasing their first home is allowed to withdraw a penalty-free distribution if the purchase occurs prior to the minimum distribution age (59 ½).
[For more on this, see 5 Safe Ways to Tap Your Roth IRA Before You Retire]
In the recent past, first-time homebuyers have also received special tax credits and deductions, though the programs are not permanent.
Why it matters:
A first-time homebuyer is eligible to receive penalty-free, early distributions from their IRA or Roth IRA if they are to use the funds towards a primary residence (usually towards a down payment or closing fees). If a first-time homebuyer is to take an early withdraw from a Roth IRA, they may not have to pay taxes on the earnings as well. See the IRS publication for more details.