What is the best way to save for a down payment, tax-wise?

Roth IRA's are not subject to tax, so that's one way.. the other is a traditional IRA. If you put money into an IRA, you can withdraw up to $10K and you will not have to pay a penalty. You will have to pay taxes on the withdrawal, but no penalties.. The third option is a loan against your 401K.. under IRS hardship rules, you cannot withdraw funds from a 401K without paying the 10% penalty and taxes, but you can borrow against it. The loan will have to be repaid, but it is an option for you... I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

Forget saving for a down-payment as you probably won't be able to save enough money fast enough to keep up with the rising prices of real estate. I'd get an FHA loan and it only needs 3.5% down and that down can be fully gifted to you. In other words, a family member, employer or government entity can give you the money (not loan you the money). Many years ago my 60 yr old mortgage sales manager said, "Every 1st time buyer needs a little help financially to get the house."

A Roth IRA allows you to withdraw money free of income tax.

I agree with the previous statement. The Roth IRA is your best option.

Roth IRA allows you to withdraw money free of income tax.

The other option, which not many people are aware of, is that you could use an IRA to purchase the home, so that the initial amount in the account is used to do the purchase (cover down payment and closing costs) and then you can use future deposits to cover the mortgage payments. You should talk to your tax accountant about the best way to structure any of these programs.

The best person to consult would be your tax advisor- With that being said, as stated already, the Roth IRA is a way to save-