 IRA
withdrawal used toward home purchase
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 Dear
Tax Talk,
I was laid off from my job about a year ago, in which I had a 401(k).
I rolled it over into an IRA account at my bank. About six months
later my wife and I were approved for a mortgage for our first house.
I pulled $18,000 out of the IRA for the down payment closing costs
and used the rest for improvements to the home. I was under the
impression that as long as I use the IRA money to buy our first
home that there would be minimal penalties, if any. Now that tax
time is here, I am asking, do I have anything to worry about? Thanks.
-- Shawn
 Dear
Shawn,
Your impressions are about half right. You can
withdraw up to $10,000 for qualified acquisition costs of your first
home and not pay a 10-percent, early withdrawal penalty on that
amount. A 10-percent, early withdrawal penalty is imposed on IRA
withdrawals before age 59½, unless an exception such as first-time
home purchase applies.
To qualify for treatment as a first-time home buyer
distribution, the distribution must meet all the following requirements.
- It must be used to pay qualified acquisition costs
within 120 days after the day you received it.
- It must be used to pay qualified acquisition costs
for the main home of a first-time home buyer such as you, your
spouse, children, grandchildren or ancestors.
- You have not withdrawn $10,000 previously for
a first-time home purchase.
If both you and your spouse are first-time home buyers,
each of you can receive distributions of up to $10,000 for a first
home without having to pay the 10-percent additional tax. But this
would have to come from separate IRAs (i.e., yours and hers). Since
the $18,000 came from your IRA and your maximum exclusion is $10,000,
you are subject to the 10-percent penalty on the excess: $8,000.
Qualified acquisition costs include the following
items.
- Costs of buying (such as your down payment), building
or rebuilding a home.
- Any usual or reasonable settlement, financing or
other closing costs.
If you and your spouse have not had a home for more
than two years, this will be considered a first home.
To ask a tax question, go to
the "Ask the Experts"
page, and select "taxes" as the topic.
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