Early IRA Distribution
Anyone know if there is a way to avoid the 10% tax on an early distribution from an IRA if the distribution was to pay for the sale of an underwater house. I had to sell my house at a loss and pay funds for the sale to close. My only option was to tax money out of my IRA (not inherited and I’m under 59 1/2). I was able to redeposit some of the distribution within the 60 day rollover limit but still will owe tax on the rest. Any help here is greatly appreciated!
Permalink Submitted by Anonymous (not verified) on Fri, 2009-02-20 03:27
Steve,
Unfortuneately, there is no specific exception that covers this purpose. That leaves the unlikely option that you qualify for one of the other exceptions such as certain medical or higher education costs that you did not take an IRA distribution for, but paid for. Another would be starting a 72t (SEPP) plan. Since there are no tracing rules, you could take the IRA distribution and indirectly apply it to the other exception to waive early withdrawal. I understand this is a real long shot. Starting a SEPP for this reason is not good planning unless you have other reasons for needing such a plan.
Other than this, stay tuned to any potential tax relief that may yet be announced in additional housing related relief measures. This would be a logical benefit to include in one of the provisions, and as the situation worsens there will likely be more relief measures passed.