IRA Distribution -First time home buyers avoid penalty
I have a quick question in regards to taking a distribution from an IRA and avoiding the 10% penalty because the 10K is being used towards the purchase of a house by a first time home buyer.
If one spouse purchased a house by themselves when they were single and now they live in that house together/married and upon sale of that house, they are looking to buy a new house with the other spouse as a co-owner, who had not previously purchased a home, could the spouse who had not purchased the home initially still qualify for the penalty free distribution or does the fact that one of the two married parties already purchased a home disqualify them both?
When I read the first time home buyers credit policies, it looked to exclude a married couple if one of the parties was a previous home owner regardless if one of them had not previously bought a home. Does this IRA distribution work the same way?
Thank you kindly…
Permalink Submitted by Alan Spross on Mon, 2009-08-17 18:46
Unfortuneately, the new spouse does not qualify for this particular penalty exception because the definition of “first time homebuyer” requires that the other spouse must also meet the no ownership requirement for the prior 2 years. In other words, both spouses must meet the requirement.
If either spouse has a Roth IRA holding regular contributions, a distribution can be taken that is both tax and penalty free up to the amount of regular contributions. This also applies to conversion contributions if the conversion was done prior to 2005.