Ask the tax adviser
IRA home-buying limits
Dear Tax Talk:
I am receiving a rollover from my ex-husband's individual retirement
account. What are the tax considerations if I withdraw the money
from the IRA in the next month or two for the purchase of a first
home for me. My ex-husband and I currently own a home together that
is on the market, but probably won't sell it before I am ready to
buy my house.
Stop! Don't do what you're thinking of doing.
To make a penalty-free IRA withdrawal (income tax
still applies) to purchase a first home, you have to have not owned
a home in the last two years. Since you still own your former marital
home, you won't qualify for the penalty-free withdrawal.
Of course, if you're over age 59½ you can always
make a penalty-free withdrawal, but you would still owe income tax.
If you're waiting to sell the old home shortly on which you probably
won't owe any tax, I can't imagine why you would want to make a
withdrawal that is taxable. You'll be better off waiting until the
old home is sold and the proceeds divided to purchase your new home.
An alternative would be to take a withdrawal from
the IRA for up to 60 days. So long as you replace the money from
the IRA by the 60th day, you won't owe tax or penalty on the withdrawal.
You might want to look at this possibility as soon as you receive
an offer on the former marital home where you can use the proceeds
to repay the IRA withdrawal.
-- Posted Nov. 20, 2001