||Ask the Dollar Diva
An IRA break for first-time
Dear Dollar Diva,
I have money in an IRA and want to use it to buy a home. If I take
the money out before I'm 59-1/2 years old will I be penalized, or
is there a break for first-time home buyers?
You're in luck! First-time home buyers get a break
-- if it's a traditional IRA. The Roth IRA has to be held for five
years before you can get this break, and, since it originated in
1998, nobody has a Roth old enough to be eligible. Here are the
rules that have to be followed to avoid the 10 percent early withdrawal
- The first-time home buyer cannot have had
an ownership interest in a main home for two years prior to the
acquisition of the new home. If he is married, his wife must also
meet this requirement.
- Withdrawals can be spent for buying, building
or rebuilding a home, and for any usual settlement, financing
or other closing costs.
- The above costs must be paid within 120 days
of the IRA withdrawal.
- You can be the first time home buyer for
whom the withdrawal is made, or it can be your wife, or the child,
grandchild, parent or other ancestor of you or your wife.
- The maximum amount that can be withdrawn
for this purpose is $10,000. This is a lifetime maximum, so if
you withdraw $6,000 now, you will only be able to withdraw $4,000
without penalty next time.
- If you and your spouse are first-time home
buyers, each of you can withdraw up to $10,000 for first-home
Remember, even though you beat the penalty, you have
to pay income tax on the distribution at your current marginal tax
You can download IRS Publication 590, Individual Retirement
Arrangements (IRAs) (Including Roth IRAs and Education IRAs), for
more details on this and the other early withdrawals that are not
subject to the penalty, i.e. certain higher education and medical
-- Posted: Jan. 31, 2000