IRA for down payment on home
Client is 55 and has no other choice and would like to take out 10k from her IRA to purchase a home.
Questions:
1. She is allowed to withdraw 10k from her IRA to purchase a home without 10% penalty (has not owned a home in over 2yrs), correct?
2. Does she still have to pay taxes on the 10K?
3. She can rollover any amount of the 10k within 60 days to avoid taxes, correct?
4, How does the IRS know if she spent it on the down payment…include closing statement from mortgage company when she files, yes?
5. Any other caveat or exemptions to know about?
Thank you very much,
Douglas
Permalink Submitted by Alan - IRA critic on Mon, 2021-07-26 20:17
Correct. The 10,000 is a lifetime limit.
Yes, ordinary taxes are due.
A 60 day rollover can be done providing she has not done another rollover in the prior 12 months. If the deal falls through and does not close or is delayed, she has 120 days to roll the funds back, and the one rollover limit does not apply.
Form 5329 must be filed with the return showing exception code 09. The closing statement does not need to be included, but should be saved for the rare case where the IRS would ask for it. Any qualified acquisition cost is covered including settlement costs and financing costs.
Funds must be paid within 120 days of the distribution, so it is safer to not take the distribution until it is needed.
Similar but more complex rules apply if a Roth IRA distribution is used.