Should You Tap Your Roth IRA, 401(k), or Money-Market Account for Big Home Repairs?

Key Takeaways

Use cash or a money‑market account first because withdrawals don’t trigger taxes or penalties and they keep your retirement fund intact.
Roth IRA contributions are a conditional backup: you can pull out funds tax‑ and penalty‑free, but you lose future tax‑free growth.
401(k) withdrawals and loans should be used as a last resort due to the penalties and fees that can be associated with them.

When your roof starts leaking or the furnace dies, waiting until you have the cash to repair it may not be an option. Most households do not keep a separate, fully-funded account for home repairs that's ready for five‑figure surprises. Unfortunately, this means that you may have to tap your retirement accounts, putting your retirement security at risk. Here's how to navigate this stressful time and what to consider.

Roth IRA: A Conditional Backup Option

Unlike a traditional IRA, which is funded with pre-tax contributions, a Roth IRA is funded with after‑tax dollars. This means that qualified withdrawals are completely tax‑free. As long as you’ve had the account for five years, you can pull out your contributions anytime without taxes or penalties.

However, if you withdraw your earnings, you will need to pay income taxes on the amount and a 10% penalty.

There's also the cost of losing years of potential tax‑free growth once your money leaves the account.

And even if you wanted to, you might not be able to contribute all of the funds that you withdrew—at least all at one time. That’s because the IRS sets limits on how much you can contribute to your IRA every year. For 2026, if you’re under 50, that limit is $7,500. If you’re 50 or older, it’s $8,600. So if you, say, withdraw $30,000 from your Roth IRA for home repairs in 2026, the most you can deposit in your Roth IRA account is $7,500 or $8,600, depending on your age.

Best use: Use Roth contributions only after exhausting cash and money‑market savings, treating them as a guarded safety valve. It’s a good idea to keep withdrawals as small as possible and then create a realistic rebuilding plan. Replenishing your Roth IRA will take time.

401(k): The Last‑Resort Option

A 401(k) is an employer‑sponsored retirement plan. Like IRAs, traditional 401(k)s use pre‑tax dollars to build retirement savings, while Roth 401(k)s use after-tax dollars.

If you withdraw funds from your 401(k) and you’re younger than age 59½, you’ll likely need to pay income tax on the withdrawn funds plus a 10% early withdrawal penalty. The exception is a hardship withdrawal, which doesn’t come with a penalty. Note: A hardship withdrawal could be an option to fund your urgent home repairs, if you can demonstrate to your employer and the IRS that you’re using the money to repair your principal residence and that your need is “immediate” and “heavy.” Note: Not all repairs will qualify. Plus, even if you don’t have to pay a penalty, you’ll still lose compounding growth and future spending power.

Another option is a 401(k) loan, which has its own rules and limitations. If you don’t qualify for a hardship withdrawal, a 401(k) loan is typically a better option than a 401(k) withdrawal.

You can't get a loan for more than $50,000 or 50% of your vested account balance, whichever is less. Sometimes plans will make the following exception, but it's not required: if 50% of the balance is less than $10,000, then you may borrow up to $10,000.

Typically, you must pay the loan at least quarterly, and it can't extend for more than 5 years. There are certain requirements you must meet if you leave your company and have an outstanding loan balance.

Best use: Reserve 401(k) loans or withdrawals for true emergencies.

How To Decide Which Account To Tap

Start by asking whether the repair threatens safety or habitability. Another thing to consider is urgency. Truly urgent issues, like major roof leaks or electrical hazards, might justify tapping retirement reserves once your cash is gone.

Next, inventory your liquid cash and money‑market balances and decide how low you can safely go—you want to fix your home without leaving yourself one paycheck away from a different emergency. Then consider your age, tax bracket, and ability to replenish your retirement account. Younger savers lose more compounding when accounts are drained.

Alternatives Before Touching Retirement

Check your homeowners insurance first, especially after storms or sudden damage, because covered losses shift costs to your insurer. Even partial coverage for specific components, like gutters or interior damage, can shrink how much you must pull from savings. Document damage thoroughly and understand your deductible so you are not leaving money on the table.

If you have home equity, a HELOC or fixed‑rate home equity loan can offer lower rates than credit cards. Well‑qualified borrowers may also find competitive personal loans or contractor financing plans with promotional low‑interest periods.

Tip

Tightening your monthly budget can free up extra cash to reduce how much you need to borrow.

Common Mistakes To Avoid

Many people instinctively raid retirement accounts because the balances look large and immediately accessible. That mindset hides the tax bill, the penalty, and the decades of forgone investment growth that follow. Treat retirement accounts as protected money, not as a default emergency fund for home projects.

Another common mistake is draining every dollar of liquid savings without a plan to rebuild. Emergencies cluster, and a second big expense can arrive before you refill your cushion. Aim to preserve at least a starter emergency fund, even if repairs feel painfully expensive today.

Finally, avoid viewing Roth IRA withdrawals as free. The true cost is invisible: smaller future tax‑free income and less flexibility in retirement. Write out a concrete rebuilding plan before moving a single Roth dollar into a contractor’s account.