IRA withdrawal for 1st home

Submitted by Douglas Bauerband on Mon, 2020-10-12 14:48

I read that you can withdrawal 10k for your 1st home without any 10% penalty…is that correct?

You will pay taxes on it, correcrt?

Have client who bought home but didn’t know about that rule. They paid out 13k for closing and it put them in a little bit of a hole.

Can they take the withdrawal now of the 10k even though they closed on the home in June of 2020?

Can they do the same withdrawal from a 403b if they don’t have an IRA?

Thank you for any assistance.

Douglas

Permalink Submitted by Alan - IRA critic on Mon, 2020-10-12 20:38

Yes, taxes apply but not the penalty on up to 10k. The penalty exception does not apply to 403b distributions, only IRA distributions, but if married and the spouse has an IRA, each spouse can use the 10k penalty exception. Each spouse can only use the exception one time over their lifetime, so if this exception has been used before, it is not available again.
The main question here is the timing, since the distribution is being taken after the closing for reimbursement purposes, but in the same tax year. The code is specific about a 120 day time limit to pay the expense after the distribution is received, but silent on the question of post purchase reimbursement. I would apply the exception by filing Form 5329 and entering exception code 09 on line 2 of the form.