I have put $25,000 in a ROTH IRA 2 years ago, I'm a 1st time buyer, my intent is take 5%
of the balance for a home purchase, my admin person at USAA says i should be charged
a tax penalty but recommended that i get an opinion from a tax expert,
what if any tax penalty would there be?
thank you for the help.
Debra Noss
[email address removed]
How did you "put" $25,000 into a Roth 2 years ago since the maximum Roth contribution per year was $5,500 ($6,500 of over age 50)? Was it a rollover or conversion?
Assuming that the $25,000 was your own after-tax contributions:
There is a 5 year Roth rule that says that any earnings withdrew are subject to a 10% early distribution penalty unless you have owned ANY Roth IRA account for at least 5 years - the first home exception does not overreact the 5 year rule.
However, you can ALWAYS withdraw any of your own prior contributions at any time without any tax or penalty since Roth contributions are after-tax money to start with. If the $25,000 are your previous contributions and not earnings, then that that can be withdrawn at any time, for any purpose, with no tax consequences at all.
the money was from a divorce settlement, I haven't made any contributions to it,
does that effect my withdraw options,making it a taxable withdrawal, or does the 1st time
buyer rule come into play?
I will ask someone else to offer an opinion.
@dmertz - can you help here?
Money from a divorce settlement ending up in a Roth IRA sounds like an excess contribution to me... Perhaps an employer plan and QDRO would allow it.... Any ideas?
Did the money now in your Roth IRA come from your ex-spouse's Roth IRA, from a designated Roth account in a qualified retirement plan like a 401(k), from a traditional account in a qualified retirement plan, or was the money paid to you personally and you later used the money to make a deposit into the Roth IRA (which one)?
If the money came from your ex-spouse's Roth IRA, was the money moved to your Roth IRA by nonreportable trustee-to-trustee transfer?
Assuming that the money came from a retirement account of your ex-spouse, was the money deposited into any account other than the Roth IRA between the time the money left your ex-spouse's retirement account and the time it was deposited into the Roth IRA?