That depends, you will owe income tax on it regardless of how you use it, but you may be able to avoid the 10% penalty.
- Normally, you must pay a 10% penalty on any IRA distributions you take before age 59½.
- If the 1099-R is from an IRA (There is a check box on the form), As long as you are a first-time homebuyer (i.e., you haven't owned a home in the last two years) and put the money toward “qualified acquisition costs,” you'll be exempt from the penalty.
- If this is from a retirement account (like a 401-K) it is not exempt
See Section (F) Internal Revenue Code Section 72(t)(2)(F)
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