Lewes CPA
officeProgar & Company, P.A.
Certified Public Accounting services for businesses and individuals
No penalty for early withdrawal of IRA funds for first-time homebuyers (MS Word)
No penalty for early withdrawal of IRA funds for first-time homebuyers (.pdf)
No penalty for early withdrawal of IRA funds for first-time
homebuyers
Dear Reader:
I am writing to remind you of a particular tax benefit that helps
IRA owners and others become homeowners. The law lets individuals
receive distributions from their IRAs to pay up to $10,000 of
first-time homebuyer expenses without incurring the 10% early
withdrawal penalty that usually applies to withdrawals from an IRA
before age 591/2 . (The regular income tax on the distribution still
applies.)
There are some things you should know about this tax benefit. One is
that a “first-time homebuyer” doesn't really have to be a true
first-time homebuyer, since the law defines “first-time homebuyer”
simply as someone who has not owned a home for two years. So instead
of benefiting just traditional “first-time homebuyers,” the law also
helps “not-recent” homebuyers. Also, you can take advantage of the
provision even if you yourself are not the first-time homebuyer,
since the first-time homebuyer can be the IRA owner, his or her
spouse, or any of their children, grandchildren or ancestors.
The $10,000 limit is a lifetime limit on the amount of withdrawals
that can be pulled out of the IRA penalty free under the first-time
homebuyers provision. Although the law isn't clear, it seems
permissible that, for example, a husband and wife helping one of
their children scrape together a down payment can each withdraw up
to $10,000 from their respective IRAs without incurring any penalty
for early withdrawal.
If you have any questions or would like to discuss this subject
further please do not hesitate to call.