IRA Distributions and Roth Recharacterizations: Today’s Slott Report Mailbag

Thursday, January 14, 2021

By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on Twitter: @theslottreport

Question:

I recently retired and I plan to relocate to Tennessee. I would like to purchase a new home. Can I pull funds from my IRA to do so, and what would be the implications? Thank you.

Edna

Answer:

Edna,

If you are over 59 ½, you have full access to your IRA dollars with no strings attached – other than having to pay taxes on the distribution. If you want to withdraw some dollars to buy a new home, then go for it. However, if you are under age 59 ½, then there would be a 10% penalty on any early IRA distribution (plus taxes due) unless an exception existed. There is an exception for a first-time home buyer. A “first-time home buyer” doesn’t necessarily mean this is the first home you have ever purchased. It means you (and your spouse, if married) did not own a principal residence within the previous 2 years. Be aware that the lifetime first-time home buyer distribution is limited to only $10,000.

Question:

Dear Sir,

In 2020, I converted $20,000 from a Traditional IRA to a Roth IRA. Can I recharacterize that amount from the Roth IRA back to a Traditional IRA? I appreciate your help.

Answer:

Unfortunately, Roth conversions can no longer be recharacterized (undone). The $20,000 will be reported as taxable income for 2020 – there is no reversing the transaction.

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