I am thinking of withdrawing 10k from my IRA to build a home. Is the penalty exception for the 10% for gross or net of the 10k withdrawn from the IRA?

[bigpapa8359]

I want to make sure I withhold enough to cover federal taxes and didn't know if I could get the full 10k and then add the federal tax or is the 10k the maximum including the taxes I need.

[DawnC]

Most retirement plan distributions are subject to income tax and may be subject to an additional 10% tax.   You will owe income tax on the gross amount you withdrawal.   If you qualify for the first time home buyer exception, that only applies to the 10% early withdrawal penalty on the first $10K.   

The first $10K that you take from your IRA as a qualified first time home buyer is exempt from the early withdrawal penalty (the extra 10%).   Any amount over $10K, the 10% penalty will apply.   The full amount will be subjected to ordinary income tax.    If you are under 59 and you take $10K as a qualified first time homebuyer, you won't pay any penalty, but you will still owe the ordinary income tax, depending on your tax bracket, on the full $10k.    If you take $15K, you owe income tax on the full amount and the additional 10% early withdrawal penalty on $5k.    

Exception to 10% Additional Tax

[fanfare]

see the IRS Pubs for the rules.

you must take out the money within 120 day period before you close on the home.

you must use the money for qualified acquisition costs.

[dmertz]

As long as you use at least $10,000 of your cash toward a qualified first-home purchase, a $10,000 gross distribution from the IRA, no matter how much of it is withheld for taxes, will qualify for the first-home exception to the early-distribution penalty.  For example, if you take a $10,000 distribution and have $2,000 withheld for taxes, as long as you put the remaining $8,000 from the distribution plus another $2,000 of other cash toward the purchase of the home, the entire $10,000 distribution will be free of penalty.  If you do not put $2,000 of other cash toward the purchase, resulting in only $8,000 of cash going toward the purchase, the $2,000 not applied to the purchase will be subject to the 10% penalty.