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3
Penalty-free IRA withdrawals
Dear Tax Talk:
I have an IRA, am disabled, 70-plus and divorced. Can I use $10,000
tax-free to purchase my second home? My first home went to the wife
after the divorce.
Carl
Dear Carl:
Whatever made you think taking money out of your IRA to buy a home
is tax-free? You're obviously confused with the rule that the withdrawal
of money from your IRA is penalty-free if used to buy your first
home.
All withdrawals from an IRA after age 59½ are
penalty-free regardless of the use of funds. However, whether it's
tax-free depends on the type of IRA. Taxes generally are due on
earnings withdrawn from traditional individual retirement accounts.
But for Roth IRAs, earnings are tax-free when withdrawn.
For Tax Talk readers who have not reached age 59½,
you can make the penalty-free IRA withdrawal for a first-time home
purchase if you have not owned a home within two years of the date
you acquire the home.
-- Posted: Oct. 12, 2001
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