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Can $2,000 of a $12,000 early distribution from a Roth IRA be considered a tax-free, penalty-free early distribution of contributions and the other $10,000 be considered a tax-free, penalty-free first-time homebuyer early distribution?
On June 7, 2019 at 4:02 PM, macuser_22, a Level 15 Champ, stated, “You can always withdraw your own previous contributions from a Roth both tax and penalty free. Only the earnings are subject to the penalty, so you only need to exclude the earnings from the penalty. For example, if you have previously contributed $8,000 to the Roth and now that has grown to $15,000, you can withdraw the entire $15,000 penalty free. You would enter $8,000 as previous contributions and $7,000 as a [first-time] homebuyer’s exclusion and still have $3,000 left in the lifetime $10,000 limit.”
Questions
- Is macuser_22’s example above still valid?
- If macuser_22’s example above is still valid, does my Proposed Tax Strategy make sense?
Background: In 2020 at age 56, I took a $12,000 early distribution from a Roth IRA funded between 1995 and 2000 with total contributions equal to or greater than $2,000. (I am having difficulty documenting my contributions.)
Proposed Tax Strategy
- The first portion, i.e., $2,000, was a tax-free, penalty-free early distribution of contributions, and
- The second portion, i.e., $10,000, was a tax-free, penalty-free early distribution used within 120 days of the distribution to purchase a home as a qualified first-time homebuyer.