IRA Rules

Archive for the ‘IRA Withdrawal Rules’ Category

Question: Roth IRA early withdrawal rules?

I know that a 401k or a traditional IRA because your contributing portion of your gross income or tax deductible dollars, if you were to access it before the age of 59 and 1/2 you will face 10% penalty + taxes. For a Roth IRA, since your contributing your after tax dollars, if you tap into it earlier than age 59 and 1/2 will you face only the 10% penalty? or still both 10% penalty + taxes?

Answer: Wayne Z’s got it right.

Contributions can be removed, anytime (despite what you read from other responders on Y!A), without tax or penalties. The ordering rules for Roth withdrawals is contributions first. Taxes and penalties apply ONLY to earnings, if any.The 5-year holding period begins on Jan 1 of the year to which your first Roth contribution applies. You need only satisfy it once.

Each conversion, however, has its own 5-yr holding period.

Hope that answers your question and earns your Best Answer vote!

DISCLAIMER FOR PROFESSIONALS: While the information in this response was obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. The opinion voiced in this answer is for general information only and it shall not be construed as tax, legal, or investment advice for any individual. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances.

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Question: How do I use my IRA to help buy my first home?

I know you can withdrawal money from an IRA for a first home purchase and related costs without the early withdrawal penalty, but how and when? I can’t find any details on the web other than you can do it and the money has to be used within 120 days of withdrawal.

I bid on a HUD home, if the bid is accepted can I withdrawal the money now to pay for appraisals, inspections, and other related costs? Do I just keep receipts for the end of the year to prove I used the money for purchasing a home?

Thanks in advance for the help, this is all new to me and a little stressful.

Answer: See IRS Form 5329 and instructions. That is where you account for exceptions to 10% penalty. Just be prepared to back it up if audited.

Note that you will still owe income tax on the distribution.

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