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Tax Talk with George Saenz

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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.

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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 Taxes generally are due on earnings withdrawn from traditional individual retirement accounts. But for Roth IRAs, earnings are tax-free when withdrawn.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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See Also
Proving an IRA withdrawal is penalty free
New tax rules make IRA management easier

IRA minimum distributions guidelines


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