IRA Rules

Posts Tagged ‘change’

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