IRA for first time home buyer
Can a 30 year old open a Traditional IRA, make contributions for 2010 and 2011, take the tax deduction and then pull the money out as a down payment for a first time home buyer? Or, is there a required amount of time the IRA needs to be established before taking the contribution for a down payment to avoid the 10% penalty?
Permalink Submitted by Alan Spross on Fri, 2011-03-04 22:59
There is no waiting period of IRA ownership.
Being able to deduct the contribution depends on modified AGI not being too high if you are covered by a retirement plan at work or your spouse is.
If the IRA contribution can be deducted, then the distribution will be taxable up to 10,000, and amounts in excess of 10,000 will also be subject to the 10% penalty.
The itemized deductions as a homeowner would offset the higher amount of taxable income resulting from the IRA distribution after the home is acquired. The exemption of the penalty on up to 10,000 is claimed by filing Form 5329 with the tax return.