IRA distribution for first home buyer
Hello,
I have a client who qualifies as a first time homebuyer under FHA.
He is looking to buy home in Atlanta.
He has rolled over 401k to IRA. He wants to take the $10,000 distribution for first time home expense.
What are the rules around what that money can be used for?
Down payment, closing costs, etc.
Thanks for your help!!
Eric
Permalink Submitted by Alan Spross on Mon, 2008-12-15 22:13
Eric,
The penalty exception is defined in the IRS Regs, not by FHA provisions. These are outlined in Pub 590 on p 55.
Uses include:
1) Cost of buying, building or re building a home
2) Any usual or reasonable settlement, financing or other closing costs.
A down payment would be included, but not subsequent loan payments.
The payment must be made not later than 120 days after the IRA distribution is taken. If the purchase falls through, the distribution can also be rolled back within 120 days of distribution.
The definition of a first time homebuyer is also explained in Pub 590.
Note that the distribution is still taxable, but the early withdrawal penalty is excused. Client will have to file Form 5329 with his tax return to claim the penalty exception.