Do I have to pay tax on an early Roth IRA distribution if I used it to buy my first home?
An early Roth IRA distribution is when you take a distribution from the account before you’re age 59½. The extent to which you have to pay tax and penalties on an early Roth IRA distribution depends on whether:
The distribution is taken from contributions or from earnings
Your first Roth IRA contribution was made less than five years before the distribution
The distribution is for the purchase of a qualifying home
If the distribution is taken from Roth IRA contributions, there’s no tax or penalty.
If the distribution is taken from Roth IRA earnings and if it was taken early:
The distribution is taken into your income and there’s a 10% penalty, except
If the distribution was applied to a qualified first home purchase, it’s still taken into your income, but there’s no 10% penalty on the first $10,000 of the distribution.
To qualify for the $10,000 first home exception these conditions must be met:
The property you’re purchasing qualifies as a first home. (Tip: Anyone who hasn’t owned a main home for two years may qualify as a first-time homebuyer.)
The home is being purchased for you, your spouse, or you or your spouse’s: child, grandchild, parent, or grandparent.
You purchase the home within 120 days of making the withdrawal.
You haven’t previously exceeded the $10,000 lifetime limit for first-home withdrawals.
If you’re married, the $10,000 exception can apply to both you and your spouse.
If you’re still not sure, don’t worry. When you enter the info from your 1099-R, TurboTax will ask you all the right questions to determine how much, if any, of your Roth IRA distribution is taxable.
