Q. Can I use some of my IRA to buy a third home? I already have a primary residence and a vacation home. This will be our new primary residence, and we'll rent our current house until the market improves and it can be sold. I am in my 40s and have a large family. This seems like a better use of the money than keeping it in my IRA.

A. You can tap an IRA to fund a down payment on a home, but the rules governing those retirement plans could require you to pay taxes and penalties on any withdrawal.

If you have a Roth IRA -- where contributions are not deductible from income and earnings accumulate tax-free -- you can make withdrawals at any age without incurring taxes or penalties as long as what you take out does not exceed what you put in.

For example, if you've contributed $20,000 to a Roth IRA over the years, that's how much you can withdraw without taxes or penalties.

After that, any money you remove before age 59½ will generally be subject to ordinary income tax, plus an additional 10% penalty tax.

With a traditional IRA funded with pretax dollars, virtually all withdrawals before age 59½ are subject to income tax, as well as the penalty.

The IRS waives the penalty for both Roth and traditional IRAs if the monies are used to pay first-time home buyer expenses of up to $10,000.

Clearly, you don't fall into this category because you already own a primary residence and a vacation home.

The bigger question is whether it's really a good idea to raid your IRA to invest in real estate.

To be sure, a nice house is a much more enticing investment than boring index funds. And the devastating bear market in 2008 and early 2009 has turned a lot of people away from stocks.

But don't underestimate the power of the tax-deferred compounding of earnings in an IRA, particularly for someone as young as yourself.

If you leave $20,000 in your IRA instead of pulling it out for a down payment, it would grow to more than $64,000 after 20 years, assuming a relatively modest 6% rate of return.

And taxes and penalties could reduce any amounts you take out now by one-third or more, leaving you with less of a down payment than you may have anticipated.

Even though the home you're buying will likely appreciate over time, an additional mortgage and carrying costs might prevent you from adding contributions to your tax-deferred retirement savings accounts in the future.

Remember, the bedrock of a solid retirement savings strategy is diversification.

If a big chunk of your net worth is already tied up in real estate, this move can only make you more dependent on, and vulnerable to, the ups and downs of that one market.