Most taxpayers know that they will pay a 10% penalty if they withdraw funds from their IRA before they turn 59.5 years old. There is an exception for firsttime home buyers that allows a penalty-free withdrawal of up to $10,000 per person if they haven’t owned a home in the previous two years.
This would allow a married couple who each have an IRA to withdraw a lifetime maximum of $10,000 each, penalty-free for a home purchase.
In many cases, the money would be used for a down payment or closing costs. However, some buyers might consider this source to increase their down payment so they could qualify for a loan without mortgage insurance.
If the taxpayer qualifies for the penalty-free withdrawal, there may still be taxes due. Contributions to traditional IRAs are made with before-tax dollars and the tax is paid when the funds are withdrawn. Since Roth IRAs are made with aftertax dollars, there is no tax due when the funds are withdrawn.
Another interesting fact about this provision is that the taxpayer making the withdrawal can help a qualified relative which includes children, grandchildren, parents and grandparents.
Homebuyers who are considering using IRA funds for a home purchase should get expert advice from their tax professional concerning their individual situation.
Author:Tory Sartwelle Phone: 713-828-0179 Dated: March 21st 2016 Views: 289 About Tory: Specializing in Houston's Premier Inner Loop and near town neighborhoods the Museum District, Midtow...
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