First Time Homeowner
401k plans do not have an exception to the 10% premature distribution penalty for a qualified first time homeowner. But IRAs do. Can one roll 401k dollars to an IRA and thereby gain this exception for those dollars? [ I know this does NOT work for the ‘separation after age 55’ exception].
Permalink Submitted by Alan Spross on Fri, 2011-04-29 20:24
Yes, they can do as you indicated. First do a direct rollover to an IRA and then take the first home distribution up to 10,000 from the IRA and it will be exempt from penalty.
If someone has a qualified plan from which they already have met the age 55 separation exception, then they could take the distribution from the qualified plan and it would be penalty free without using up any of the 10,000 first home exception. As you said, if the taxpayer already has the age 55 exception, funds rolled to an IRA lose that exception and then would have to use one of the IRA exceptions.
Permalink Submitted by Diedre Kruse on Mon, 2011-05-09 17:29
What if the taxpayer owned a home as his sole and separate property, but his spouse did not. NOW, the spouse (and they’re still married) is purchasing a home as her sole and separate property, for them to live in together. Can the spouse take the $10,000 penalty free withdrawal? If so, can you please cite the code or page in the pub??? Thanks
Permalink Submitted by Alan Spross on Mon, 2011-05-09 18:21
Can’t tell for sure from the info provided.
While each spouse has a 10,000 lifetime exemption from the 10% penalty if each spouse has their own IRA from which to take distributions, in this case the second exemption would not apply if each spouse currently did not meet the “first time homebuyer” definition at the time of the purchase. Therefore, neither spouse would have been able to own a main home at any time in the two year period prior to the date of acquisition of the latest home in order to qualify for the exemption.
The entire exception is outlined on p 54 of Pub 590. Note particularly the definition of “first time hopebuyer”. In this case whether either home was individually owned or jointly owned does not change the result.
Permalink Submitted by Deoyani Sarkhot on Wed, 2011-07-06 04:56
Thank you for the info on IRA exception for first time home purchase. I had a question about the applicability of this rule for foreigners. I was working in the US for a while and had an IRA account.
Recently I came back to my home country, India and would like to buy my first home. Can I withdraw some money ($5000) from the IRA account for this purpose without penalty? I wish to buy some land and build the house myself. Is paying for the land (in India) considered a qualified purchase?
Please let me know. Thank you for your assistance.
Regards,
Deoyani.
Permalink Submitted by mk foss on Wed, 2011-07-06 17:06
IRS describes a home as a place with cooking, sleeping and toilet spaces – land wouldn’t qualify.