Question about using Traditional IRA funds towards purchase of home

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PURPLEHAZE_IHB

PURPLEHAZE_IHB

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If I want to use my Traditional IRA up to $10,000 against the purchase of my first home purchase, what steps do I need to follow to be able to withdraw these funds? What documentation do I need to furnish to IRS to show that I have applied the withdrawn funds towards a new home purchase such that my withdrawal does not attract any penalty or tax?

Thank you for your response in advance.
 
<p>You probably could, but if this isn't your first home, you'll probably have a butload of tax implications. I'd also say that 10k isn't going to get you far into a house. now 50k that will get you a little closer to where you need to be.</p>

<p> </p>

<p>-bix</p>
 
I believe the holder of your IRA (Fidelity, Vanguard, etc.) would have forms or something set up for these specific purposes. Have you had any contact with them about this?
 
why would you do this? you would be much better off leaving it in, and saving hard for a couple more months for the downpayment.
 
It is a good call but 10M is the max you can take out without a 10% principal penalty and the taxes. Use it to add to your downpayment but if that is all you got wait and save some more
 
If you have not owned a home in three years, this will be your first home for purposes of an IRA distribution.<p>

Best if you tell your IRA trustee what the money is for, but chances are they will tell you "whatever" in some shape or form. When you prepare your return for the year you withdrew the $10,000, you will fill out an extra form called a 5423 and you will put in the correct exemption from penalty for early withdrawl code. I forget which it is. That's all.
 
Hi all, thank you for your advices and comments. My liqudity situation is very good and I have been putting away money into the IRA just for tax benefits. I do have enough stacked away for downpayment and am not really tapping into the IRA for lack of other funds. I have a strong 401k situation.

Awgee, thank you for the specific and detailed comment - that was helpful.
 
remember - the 10k is penalty free, not TAX-free. if you also have a roth ira, you can withdraw your original contributions without tax and penalty impacts. that would be a much better idea.
 
Haze, is it an actual withdrawl or a "loan" to yourself that you immediately begin paying back into the account. I can take up to 50% of my Deferred Compensation account out as a "loan", but I have to start "paying myself" back right away. So I get a lump sum up front without penalty or tax, but monthly "payments" back into the account just like a loan. That way, it's fully funded again after a 5 year period. (I know, I know...minus what I would have made if that money stayed in there and compounded).





I thought about doing this to pay off my second mortgage, but bloggers here helped me see the light.
 
If it comes from a qualified plan that allows loans you can do that. However if it is a stand alone of IRA rollover you cannot borrow against it and must take the balance out as a distribution. You could technically give yourself a 90 day bridge loan from an IRA as long as you put the money back before the 90 days elapses otherwise it is treated as a premature distribution and penalized and taxed accordingly
 
<p>My theory is that the NAR paid off the politicians to get this "allowance" towards the purchase of a home. It is an example of how the NAR "kickbacks" the commissions from home sales to politicians to pass the legislation which helps keep home prices high. The legislation does NOTHING in terms of making homes more affordable (as politicians/NAR would have you believe) because people will generally use all means available to make that first purchase. Take away that additional means and the entry level market will have to reflect it.</p>

<p>I will be pretty upset if our bonehead politicians increase this limit. As it is, 10K is a joke in the present market.</p>

<p>I know this post doesn't contribute to the topic, but I just wanted to vent as I was vexed when I discovered this concession to everyone, but the entry level buyer.</p>
 
"remember - the 10k is penalty free, not TAX-free. if you also have a roth ira, you can withdraw your original contributions without tax and penalty impacts. that would be a much better idea."



I only have a Roth IRA, not a traditional IRA but for argument's sake figured I would ask. If one had both a Roth IRA and Traditional IRA, could one take 10k from each one? I never thought about it before since I never knew the first home purchase exception applied to Traditional IRA's as well.
 
10k total whether it comes from your roth, trad, or a combination of both. so if you have 10k in contributions in your roth to date you can withdraw those funds without tax or penalty.





vanguard and fidelity will allow you to liquidate your ira holdings. they will record the transaction with the IRS but wont make any deductions from your holdings at that point. it's up to you to file the appropriate forms and pay the taxes and/or penalties.
 
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