Extension of r/o period for 1st home dist.
We have a client who would like to take a distribution from their traditional and Roth IRAs to use toward the purchase of a first home (both the client and their spouse qualify as first-time homebuyers). The client is concerned that the purchase might fall through, but after the 60-day rollover period expires. Can they get an automatic extension to 120 days since the distribution is for the purchase of a first home? My concern is that the extension falls under 72(t)(8)(E), exceptions to 10% premature distribution tax, not under the regular Automatic Waiver rules (as outlined in Pub 590). Any insight on this one?
Permalink Submitted by Alan Spross on Tue, 2010-08-24 18:46
As long as they meet the conditions (first home etc), they automatically have 120 days. If something else goes wrong, such that they do not qualify for or miss the 120 day rollover, then they would have to resort to the other waivers, either automatic or by application for an exception.
Since these rollover deadlines are actually enforced at the custodian level, it is possible that a custodian is not aware of the 120 day first home exception and refuses to accept the rollover contribution back. In that case, client should just open another IRA and tell the custodian they are making a rollover contribution.
That said, they should not distribute the IRA funds before they have to so that there is less chance of either the 60 day or the 120 day periods being exceeded. Also, note that only the 120 day provision is exempt from the one rollover per 12 month limit that would apply to a 60 day rollover.