I was looking to withdraw the max amount I can out of my Roth IRA for a first time home purchase.
My contributions so far
2013- $5,500
2014- $5,500
2015- $5,500
2016- $5,500
2017- $5,500
2018- $5,500
This year
2019- $6,000
I assume I can withdraw $39,000 from my contributions, including this years 2019 contribution.
According to my Roth IRA atm
$11,067.27 Total assets
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Assuming you have made no prior Roth IRA distributions, you have not previously used any of your lifetime $10,000 exemption for a first-home purchase and you qualify as a first-home purchaser (neither you nor your spouse had an interest in a first home in the 2-year period preceding the purchase of the first home), you can withdraw $49,000 from your own Roth IRAs tax and penalty free for the purchase of your first home. The first $39,000 that comes out will be your original contributions, tax and penalty free no matter what you use the money for. The remainder will be a distribution of earnings. Since you've had a Roth IRA for more than 5 years, the first $10,000 of earnings distributed will be a first-home qualified distribution, tax and penalty free, but will still be required to be reported on Form 8606 Part III (to determine it's nontaxable) and on Form 5329 (to eliminate the penalty). You can also withdraw any amount up to the entire balance in your Roth IRAs, but the portion beyond $49,000 will be subject to both tax and penalty unless you are over age 59½ or disabled.
As I understand it, you've already received distributions of $38,000, bringing your total assets in the Roth IRA down to $11067.27, That would suggest that the earnings in the account are actually $10,067.27, not $10,330.22, assuming that you have made no prior Roth IRA distributions. Perhaps the $10,330.22 is showing investment performance only, not Roth IRA earnings net of any account for fees deducted by the custodian, or is a value that is not updated daily. Also, a Roth IRA custodian can only report investment performance of a particular account. If you have more than one Roth IRA account your Roth IRA earnings is the aggregate balance in your Roth IRAs minus your remaining contribution (and Roth conversion) basis.
Also, the Roth IRA custodian has no need to know what you are using the money for unless the purchase is delayed or cancelled and you need to roll the $10,000 that qualifies for the first-home purchase exception back into the Roth IRA after the normal 60-day rollover deadline but before the 120-day deadline for doing so, in which case the Roth IRA custodian only needs to know at the time of the rollover that this is a rollover of a first-home purchase distribution.
Depending on the performance in the Roth IRA between the time of your $6,000 contribution for 2019 and now, it might be better to obtain a return of contribution of $6,000 rather than a regular distribution of that portion. If there have been overall losses in the account since the date of the distribution (after adding back the $38,000 already distributed), a return of $6,000 would result in a distribution of an amount adjusted for the overall losses, something less than $6,000. If there have been investment gains, the distribution would be an amount adjusted upward, with the amount distributed over $6,000 being subject to tax and penalty. Obtaining this return of contribution would preserve the opportunity to make a new $6,000 contribution for 2019 later (until April 15, 2020) to put some money back into a Roth IRA regardless of whether or not you complete the first-home purchase. (If you obtain a return of contribution of $6,000, your original contribution basis drops to $33,000, making $5,000 of your $38,000 already distributed be a distribution of earnings to which you would need to apply the first-home purchase exception, leaving only $5,000 of the exception available for additional distributions.)
Assuming you have made no prior Roth IRA distributions, you have not previously used any of your lifetime $10,000 exemption for a first-home purchase and you qualify as a first-home purchaser (neither you nor your spouse had an interest in a first home in the 2-year period preceding the purchase of the first home), you can withdraw $49,000 from your own Roth IRAs tax and penalty free for the purchase of your first home. The first $39,000 that comes out will be your original contributions, tax and penalty free no matter what you use the money for. The remainder will be a distribution of earnings. Since you've had a Roth IRA for more than 5 years, the first $10,000 of earnings distributed will be a first-home qualified distribution, tax and penalty free, but will still be required to be reported on Form 8606 Part III (to determine it's nontaxable) and on Form 5329 (to eliminate the penalty). You can also withdraw any amount up to the entire balance in your Roth IRAs, but the portion beyond $49,000 will be subject to both tax and penalty unless you are over age 59½ or disabled.
As I understand it, you've already received distributions of $38,000, bringing your total assets in the Roth IRA down to $11067.27, That would suggest that the earnings in the account are actually $10,067.27, not $10,330.22, assuming that you have made no prior Roth IRA distributions. Perhaps the $10,330.22 is showing investment performance only, not Roth IRA earnings net of any account for fees deducted by the custodian, or is a value that is not updated daily. Also, a Roth IRA custodian can only report investment performance of a particular account. If you have more than one Roth IRA account your Roth IRA earnings is the aggregate balance in your Roth IRAs minus your remaining contribution (and Roth conversion) basis.
Also, the Roth IRA custodian has no need to know what you are using the money for unless the purchase is delayed or cancelled and you need to roll the $10,000 that qualifies for the first-home purchase exception back into the Roth IRA after the normal 60-day rollover deadline but before the 120-day deadline for doing so, in which case the Roth IRA custodian only needs to know at the time of the rollover that this is a rollover of a first-home purchase distribution.
Depending on the performance in the Roth IRA between the time of your $6,000 contribution for 2019 and now, it might be better to obtain a return of contribution of $6,000 rather than a regular distribution of that portion. If there have been overall losses in the account since the date of the distribution (after adding back the $38,000 already distributed), a return of $6,000 would result in a distribution of an amount adjusted for the overall losses, something less than $6,000. If there have been investment gains, the distribution would be an amount adjusted upward, with the amount distributed over $6,000 being subject to tax and penalty. Obtaining this return of contribution would preserve the opportunity to make a new $6,000 contribution for 2019 later (until April 15, 2020) to put some money back into a Roth IRA regardless of whether or not you complete the first-home purchase. (If you obtain a return of contribution of $6,000, your original contribution basis drops to $33,000, making $5,000 of your $38,000 already distributed be a distribution of earnings to which you would need to apply the first-home purchase exception, leaving only $5,000 of the exception available for additional distributions.)
Thank you @dmertz for your detailed response and help. I'm still trying to figure out some points you made as it gets a bit complex towards the bottom regarding me taking the 2019 6k contribution 😀.
Me and my fiancee have not taken any money out from our roth ira in the past or used the lifetime $10,000 exemption for the first time home purchase. That part I think we are good on that. We didn't start really looking for a place till maybe end of last year.
So far I've withdrawn $38,070.55 after selling my mutual funds in my roth ira leaving a total of $11,067.27 in the account (this # will change daily because its still sitting in a mutual fund). So technically I can withdraw another $929.45 to completely withdraw $39,000 of my contribution from 2013-2019 which should leave me a total of $10,137.82?
From the 10,137.82 I assume I can withdraw the $10,000 for the first time home buyer exemption to bring my account total to be $137.82?
What I'm confused about is your last paragraph. Lets say I decided wont be making any contribution back to my Roth IRA this year for 2019. Would it make things less confusing for me.
I think what I'm confused about is by putting in 6k this year 2019 and then taking it out the same year. This action seems to have made things more confusing regarding how much I can take and cant. I know definitely the 6k I added to the mutual fund in my Roth earned money in the couple of months I had it in there. But wouldn't those earnings qualify as an exemption for my first time home purchase?
Thanks
From the 10,137.82 I assume I can withdraw the $10,000 for the first time home buyer exemption to bring my account total to be $137.82?
Correct.
What I'm confused about is your last paragraph. Lets say I decided wont be making any contribution back to my Roth IRA this year for 2019. Would it make things less confusing for me.
I presented a return of contribution on the $6,000 contribution for 2019 as an optional way to get some money out of the Roth IRA. However, since there are investment gains attributable to the $6,000 contribution for 2019, it generally wouldn't make sense to obtain a return of contribution of that $6,000 because this distribution bypasses Form 8606, resulting in the first-home purchase exception not being applicable to the gains required to accompany the return of contribution. Under the circumstances, I would simply take a regular distribution of the $6,000, not a return of contribution.
hi @dmertz thank you for your fast reply
i think the part im confused about is what is the difference between return of contribution and regular distribution? If in the end I'm still taking out the whole thing out of my account leaving only $137.82? Is it a difference of ways on how the money is being taking it out?Atm what im doing to take the money out is just selling the funds and clicking
Federal tax withhold: do not withhold
State tax withhold: do not withhold
Tax withhold: do not send.
Then clicking transfer to my bank account
I apologize for me not being able to understand this correctly.
Yes, the difference between a regular distribution and a return of contribution is the method used to take the money out of the IRA, indicated by the coding on the Form 1099-R reporting the distribution. A return of contribution is most often used by those who make an excess contribution to an IRA, but the tax code allows an IRA contribution to be returned before the due date of the corresponding tax return for any reason, not just for excess contributions, to allow the contribution to be treated as never having been made. However, a return of contribution before the due date of the tax return comes with the requirement that the distribution be the amount being returned adjusted for any attributable gain or loss, with the gain being treated as taxable and subject to early-distribution penalty. A return of contribution 'undoes' the original contribution while a regular distribution does not.
With the investments having gained in value, the result would be that more than $6,000 would have to be distributed for the return of $6,000.
So @dmertz I'm now a bit lost haha.
Just wanted to clarify and understand this.
I will owe no taxes or penalties if I do this
-selling the mutual funds in my Vanguard Roth IRA of (Taken out so far $38,070.55) $39,000 and directly ACH to my bank account I should have no penalties or taxes.
-Taking the last 10k out as first time home buyers exemption account will only have $137.82 left.
I will owe taxes and penalties if i do this
- File a return of contribution with Vanguard for the 6k for this year.
Thank you for your time and patience with me
Correct for both cases.
so it seems like the best case would be the first option 😀
thanks @dmertz for the help and walking me through this
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