First Time Homebuyer Exception to Early Distribution Penalty
In regards to the exception to the 10% penalty for first time homebuyers:
Can money from an IRA be used for moving expense?
How about if the lender is requiring that credit cards be paid down in order to qualify for the home purchase – can the IRA money be used for this and not be subject to the 10% penalty?
Thanks.
Permalink Submitted by Alan Spross on Tue, 2010-01-12 17:44
No chance on the moving expenses, although certain job related moving expenses can generate a deduction.
Qualification acquisition costs are interpreted as direct costs of buying the property, not indirect costs. While there may be some flexibility in determining all the types of direct costs, the retirement of prior debt would clearly be an indirect cost. On the other hand, if your closing costs are higher BECAUSE of the prior debt, those higher closing costs would be considered qualified acquisition costs.
SInce the penalty waiver is limited to 10,000 lifetime (each spouse if married), the limit is usually reached by applying it to basic costs such as the down payment.
Note that if you happen to have a Roth IRA, the tax aspects of a first home distribution are quite different than from a traditional IRA. Also, note that this exception does NOT apply at all to distributions from an employer plan such as a 401k.