IRA Rules

Archive for June, 2007

Question: How/when do I report first-time home purchase to avoid 10% early IRA Withdrawal?

I rolled money from my 401K to a roll-over IRA to be used as a down payment on my first-home purchase. I understand $10K of that will penalty free, but how/ when do I report it? Are there any special rules I’ll need to follow to make sure I don’t disqualify myself (i.e. monies have to be sent directly from IRA to lender). Also, I read on gov page that wife is also entitled to $10K penalty free. Does it matter if the total of $20K came from the same IRA?

Answer: First home. Even if you are under age 59½, you do not have to pay the 10% additional tax on up to $10,000 of distributions you receive to buy, build, or rebuild a first home. To qualify for treatment as a first-time homebuyer distribution, the distribution must meet all the following requirements.
It must be used to pay qualified acquisition costs (defined later) before the close of the 120th day after the day you received it.

It must be used to pay qualified acquisition costs for the main home of a first-time homebuyer (defined later) who is any of the following.

Yourself.

Your spouse.

Your or your spouse’s child.

Your or your spouse’s grandchild.

Your or your spouse’s parent or other ancestor.

When added to all your prior qualified first-time homebuyer distributions, if any, total qualifying distributions cannot be more than $10,000.

Form 5329 needs to be completed

http://www.irs.gov/pub/irs-pdf/i5329.pdf

http://www.irs.gov/pub/irs-pdf/f5329.pdf

A withdrawl from each person’s individual IRA qualifies,

Publication 590

It is reported in the year the distribution was taken

http://www.irs.gov/publications/p590/ch01.html#d0e8295

401k Withdrawal Rules – 3 Things You Need to Know

Question: A question on day trading and wash sale rule?

I am a pattern day trader, and I was wondering if wash sale rule would increase my tax. Other than no buying the same stock for 30 days, there is no way to avoid wash sale rule except for getting IRA account?This is my first year as a full time day trader and it will be my first year to pay income tax as well.

Answer: If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities. The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities.
Read http://taxipay.blogspot.com/2008/04/list-of-articles.html

Stocks, Mutual Funds & Retirement Investments : Wash Sale Rules for Mutual Funds

Question: 60 Day IRA Rollover?

I want to take distribution from my IRA Rollover account with the intention of redepositing the funds back in the same rollover account within 60 days. WIll this violate any IRS rules because my intention are not to rollover to another plan?

Answer: See IRS Publication 590. Nothing prohibits changing your mind and redepositing a rollover back into the same account it came from. Just don’t be late. 2 things to be aware of:

There is manditory 20% withholding from an eligible rollover if distribution is to you. When you put the money back in, you need to add that missing 20% back in from another source, or that withholding would be taxed/penalized. If you do everything on time, you could adjust your W-4 or 1040-ES to recover the withholding sooner that waiting until filing next year.

If you take a rollover from an account, you cannot take another rollover from that account for a year. And similarly if you put a rollover into an account, you cannot put another rollover into that account for a year. However, a direct trustee-to-trustee transfer to another qualified account is not subject to withholding or rollover frequency limits, if you later want to move any of it to a different trustee directly.

Protect Your IRA & 401k From the IRS!!!! * Workshop*