Do International Homes Count As First Time Home Rebuilds?

Submitted by Sebastian Milla on Mon, 2024-01-22 21:00

Greetings and Salutations,

TL;DR: can my wife and I use the first home disbursement exception to avoid the 10% penalty if our first home is not in the US?

My wife and I are both US citizens living in Perú (I am also a Peruvian citizen and she is a resident).

We both have Roth IRAs with Vanguard.

It turns out we will be parents soon (positive pregnancy test on Thursday!)

I called the IRS today because, as I understand it, we should be able to each take out up to $15k from our IRAs without hitting the 10 percent penalty:
– $5k for the baby
– $10k because the apartment we own down here in Perú was our first home ever purchased.

When I spoke to the IRS support person they said that we met all the qualifications for the first home exception to NOT have to pay the 10% penalty EXCEPT that he and his supervisor couldn’t agree on whether that home needed to be in the US or not.

The written guidance says nothing about whether the home needs to be on US soil or not, but the support person did not feel comfortable giving me that guidance because they’d recalled previously telling others that the new home DOES have to be in the US to qualify for the exemption. His supervisor disagreed and said that the home can be anywhere to qualify.

Does anyone know how this one shakes out? Would really love to be able to take these early disbursements to prep for the baby.



Submitted by Alan - IRA critic on Mon, 2024-01-22 23:32

  • The first home does not have to be in the US, nor does the birth have to be in the US, but the birth distribution cannot be taken prior to the actual birth. If you both own IRAs, these provisions apply separately to both spouses.
  • These penalty waivers usually are used for traditional IRAs. For Roth IRAs the ordering rules require that distributions must come first from regular contributions, and since these are tax and penalty free, there is no penalty to waive until the Roth reaches taxable conversions not yet held 5 years, or earnings. 
  • If a spouse has both traditional and Roth IRAs, you could use these exceptions for either, but not more than the waiver limit of 5k per child and 10k for the first home purchase (lifetime limit). There is no benefit for claiming the qualified first home distribution shown on Form 8606 line 20 unless your Roth distribution will be large enough to reach Roth IRA earnings.


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