IRA Rules

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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

The most important thing to remember about Rollover IRA rules is the 60 day Rollover IRA rules which we discussed earlier. If you are leaving your job and you have not inquired about your retirement plan, whether it be a 401k retirement account, 403b retirement account, or any other retirement accounts, you need to do so. 

Many people get so involved in their new job or finding a new job that they let the subject of their retirement account slip. Soon, the are faced with a tax bill that they have no idea how it happens. Don’t let this happen to you. Uncle Sam is more than happy to send you a tax bill when the time comes. It is up to you to not give the IRS any reasons to bill you any more taxes than you need to. 

Remember the IRA rollover rules of 60 days and sort out your retirement account arrangement before you leave your job or immediately after. If your employer happens to cut you a check, it could get lost in the mail and you will be faced with a tax bill. 

IRA Rollover Contribution Minimum

The IRA rules regarding IRA rollover contribution minimum are the same as Traditional IRA rules and Roth IRA rules. Other Rollover IRA rules are discussed under the Rollover IRA section of this Ira Rules website. 

Important things you need to know for IRA Rollover:

• Firstly, your 401k retirement plan may contain both PRE-TAX and AFTER-TAX money.

The Pre-tax money should go into a Traditional IRA and the after-tax money in the Roth IRA individual retirement account. However, you can open just one IRA account and keep the money mixed. But, remember to keep track of which money you already paid taxes on and always bring it up when your accountant is doing your books. 

• Secondly, when you leave your job, you should ensure that the company does not cut you the retirement check by calling them and express your intention to either leave the retirement with the employer for the time being or provide the name of the financial institution where you set up an IRA account to rollover into. This will ensure that you will not violate the 60 day Rollover Ira Rules.