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Roth IRA question - First Home Withdrawal

J

Jzero

Lifer
I was under the impression that you can withdraw from a Roth IRA at any time free of both income tax and penalties if you are using it to pay for a first-time home purchase.

But some IRS docs seem to suggest that it must also be 5 years after your first contribution.

Which is it? It's been 2 years since my first contribution. If I withdraw from the account to pay for my first home, will I have to pay income tax and/or 10% penalty?
 
I think I have determined that my original contribution can be withdrawn free of tax and penalty, but any interest earned would be subject to normal income tax (but not the 10% penalty).

And I have to submit Form 8606 to report that I took the distribution but intend to use it for a first-time home purchase.

But if anyone with any experience can confirm that, I'd love you for life 😀
 
Originally posted by: kermalou
I think that there is a max. distribution of $10,000 for your first time home purchase.
Click to expand...

That agrees with what I've read. I'm only pulling $3k anyway.
That's a lifetime limit, BTW. You qualify as a first-time homebuyer if you haven't owned a home in over 2 years. You can also "distribute" the benefit to relatives or spouse's relatives who haven't owned a home in over 2 years.
 
Originally posted by: BigSmooth
So the 5 year thing doesn't matter? Or after 5 years you don't have to pay income tax either?
Click to expand...

My understanding is that for contributions, you can never be assessed taxes since you have already paid taxes on them. If you try to take a distribution in less than 5 years, you won't be assessed taxes, but you will be hit with a 10% penalty unless you meet certain criteria (one of which is 1st time home purchase).

But for interest you earned, if you try to withdraw in less than 5 years, you will be responsible for both income tax AND the 10% penalty. If you meet the exception criteria, though, you will have to pay tax but no 10% penalty.

After 5 years I think you can pull both contributions AND earnings for a 1st time home purchase without paying tax OR 10% penalty.
 
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