IRA Withdrawals: Traditional vs. Simple, 1st-Time Home Buyer
I am having a hard time finding information on whether or not taking a withdrawal from a Simple IRA based on a 1st time home buyer exception is acceptable, and if it is does it count against the max life time limit?
I have the following accts:
1 Traditional IRA 10k available per the limitiation.
1 Simple IRA – Questioning whether or not there is a 1st time home buyer provision and does it count against the Limit? If so and not factored in to the limit can it still be withdrawn while only causing a 25% tax on the funds, and does the 10% penalty apply due to under age 59 1/2? If not available then the 25% tax and 10% penalty will apply, please verify?
1 Brok-NR – Plan on using all funds if necessary, will house combined distributions from all accts,
1 Roth IRA – Plan on withdrawing all contributions only.
Basically, I want to withdraw funds from the Traditional and Simple IRA’s, what would be the most viable way of accomplishing this?
Thank you
Permalink Submitted by Alan Spross on Sun, 2009-08-30 23:42
The $10,000 lifetime limit applies to all IRA types per taxpayer as an aggregate total limit. The early withdrawal penalty is eliminated whenever this exception is claimed on Form 5329, although the regular ordinary income taxation may vary between IRA types. In the case of a SIMPLE IRA, you can apply the first homebuyer exception to eliminate the penalty regardless of whether the penalty is 10% or 25% due to the 2 year holding requirement.
This exception for Roth IRAs can also eliminate the regular tax on earnings by making the first home distribution “qualified” if the Roth has been around for 5 years. Other than this, the exception does not affect regular taxation on IRA distributions, only eliminates the early withdrawal penalty.
However, I would avoid using the SIMPLE IRA for the distribution. If the first home deal falls through, you have 120 days to roll the funds back if you withdrew from other IRA types, but with the SIMPLE IRA, you cannot roll the funds back to the same SIMPLE. You can roll them to another SIMPLE IRA if you have one, but rolling the funds to a TIRA makes them taxable plus subject to penalty if done before the 2 year holding requirement is met. Since a deal could fall through beyond your control, it is not worth the risk unless you have a second SIMPLE IRA available to accept the rollover transfer. Without the second SIMPLE IRA, you should take the distribution from the traditional IRA or from the Roth IRA as a second choice.
Many people think this exception also applies to qualified employer plans, but it does not. The first home exception only applies to IRA distributions.