Simple IRA – First Time Homebuyer
Client using simple IRA for down payment, $4,000 total, held for 4 years. I know the 10% penalty is waived and thought taxes would still be owed (he’s being told no penalty and no taxes by his mortgage broker). I’m not sure if the First Time homebuyers credit works into this…
thanks very much
Kevin
Permalink Submitted by Alan Spross on Thu, 2009-07-23 17:43
Kevin,
You are correct, the distribution is taxable, but no early withdrawal penalty as long as client qualifies under the first time homebuyer exception. More evidence that mortgage brokers should not be dispensing tax advice.
If client happens to also have traditional IRA accounts that contain non deductible contributions reported on Form 8606, this SIMPLE IRA distribution will actually be less than 100% taxable under the pro rate rules which include the year end balances of all client’s TIRA, SEP and SIMPLE IRAs. This is reported using a current 8606.
If purchase falls through, client also has 120 days from the date of distribution to roll the funds over to a TIRA, they cannot go back into the SIMPLE IRA.
Permalink Submitted by Kevin DeNardo on Thu, 2009-07-23 17:51
Appreciate it very much Alan – take care.