Retirement tax questions


@Linds B wrote:

I would like to make a withdrawal from my retirement account for a down payment of my first home. This is retirement account is just in my name. This is first time I am purchasing a home, but not my husband's. We are on the home contract together. Will I be taxed 10% or will I qualify for exemption?


 

 

You can be exempt from the 10% penalty for early withdrawal for up to $10,000 used for a "first time" home purchase.  The IRS definition of a "first time" purchase is that you can't have owned or co-owned the place you considered your main home at any time in the 2 years prior to the home purchase that you want to use for the exception.  If you are married, your spouse must also meet the no-ownership requirement for the past 2 years. 

 

That means you can qualify for the exception if you or your spouse owned other property, and you can qualify for the exception if your spouse owned a home but sold it more that 2 years ago, or moved out and used it as a rental, as long as you and your spouse did not own the home you used as your main home for the past 2 years. 

 

 

Also, the homebuyer exception only applies to IRAs.  Not to any other kind of plan.  If you have a 401k or other plan, you may be able to do a rollover of funds into an IRA and then withdraw from the IRA.  But if you directly withdraw from another plan, it won't qualify for the penalty exemption.