First-Time Home Buyer using Roth Funds
My wife and I just bought our first home last month and used some of the funds in her Roth IRA for our down payment. Is there anything we need to do right now from a reporting standpoint to make sure that we’re not charged the 10% early withdrawal penalty that should be waived for first-time homebuyers? Or do we just need to report it on our 1040 at tax time?
The Roth IRA in question had been converted from a traditional (rollover) IRA in a previous year, so the taxes had already been paid. Since the 10% early withdrawal penalty is waived, it’s my understanding that we will not owe the IRS anything for this transaction (although we will have ot report it). Is that correct?
Permalink Submitted by Alan Spross on Thu, 2008-07-10 19:43
Yes, that’s correct as long as she complied with the first home definition and the other requirements for this exception. Note that there is a lifetime limit for this of 10,000. There is nothing you need to do at this time, just file properly next spring as follows:
She will need Forms 8606 and 5329 attached to your joint return (her SSN on the 8606) that reports the distribution. She will get a 1099R from the IRA custodian showing an early withdrawal code in Box 7, but don’t worry about that. Example of Form 8606, Part III assuming her Roth contained only the prior year conversion of $x and a 10,000 distribution:
Line 19: 10,000
Line 20: 10,000
Lines 21-23: 0
Line 24: x
Line 25: 0
For Form 5329, Part I:
Line 1: 10,000
Line 2: 10,000 and enter Exception # 09
Line 3: 0
Therefore, there will be no tax or early withdrawal penalty