Most taxpayers know that the IRA withdrawal rules require them to pay an IRA withdrawal penalty of 10% if they withdraw funds from their IRA before they turn 59.5 years old. There is an exception for first-time home buyers that allows a penalty-free withdrawal of up to $10,000 per person if they haven’t owned a home in the previous two years.
This would allow a married couple who each have an IRA to withdraw a lifetime maximum of $10,000 each, penalty-free for a home purchase. Keep in mind these are the most current IRA withdrawal rules as of 2014.
In many cases, the money would be used for a down payment or closing costs. However, some buyers might consider this source to increase their down payment so they could qualify for a loan without mortgage insurance. IRA withdrawal rules vary on the type, owners’ ages, etc.
If the taxpayer qualifies for the penalty-free withdrawal, there may still be taxes due. Contributions to traditional IRAs are made with before-tax dollars and the tax is paid when the funds are withdrawn. Since Roth IRAs are made with after-tax dollars, there is no tax due when the funds are withdrawn. You should always talk to your financial professional before withdrawing any funds. He/she is much more apt to be up to date on the IRA withdrawal rules.
Another interesting fact about this provision is that the taxpayer making the withdrawal can help a qualified relative which includes children, grandchildren, parents, and grandparents.
Homebuyers who are considering using IRA funds for a home purchase should get expert advice from their tax professional concerning their individual situation.
For more information about Denver Colorado Real Estate or homes for sale along the Front Range, call Marilyn Van Steenberg, Dream Home Consultant, Certified Residential Specialist and Eco-Broker.
Specializing in Buyer Representation & Relocation Real Estate Transactions.