Originally Posted by mistersink
: 1) is this information correct?
2) does my mortgage lender need to do anything special to prove that I used the roth IRA for the home purchase, or can I just put it in my bank account and treat it as cash and still get the exception because I bought my first house around the time that I withdrew it? My lender's current plan is to use the money I have in savings only to verify that I can afford the down payment, but I have just enough cash for the down payment and want to use my IRA to replenish my bank account for a cushion. Will this still qualify me for the exception? Thank you!
#1; The rules for taking a distribution from a R- IRA to finance a first-time home purchase are slightly different than those for a traditional IRA;. R-ira allows for early withdrawals, income tax- and penalty-free , for things like buying a first home. because your r-ira contributions are always made with after tax money, you can withdraw -free and penalty free before retirement without having to fork over cash for taxes or penalties. principal has already been taxed before going into the Roth ira.However, aslongas your withdrawals exceed the amount of your original r-ira contributions, that money is considered earnings and are subject to possibleearly w/d penalties and taxes.So, t o withdraw earnings without paying taxes or penalties; withdrawal must be taken 5 years or more after the account is open. The IRS counts the 5 years from the first day of the tax year in which you make your first R-contribution. In other words, if you open the account on Nov. 1, 2014, the IRS actually starts the clock at the beginning of the tax year, that is, Jan. 1, 2014so, And also distributions needs to be made on or after the date you reach age 59 1/2 years of age
If you satisfy the time requirement, the IRS says distributions qualify aslongas the money is used to buy, build or rebuild a first home, up to a $10k maximum, and is spent within the 120 days of the withdrawal.
Part 3 of form 8606 is completed to report distributions from Roth IRAs. Completing this section allows an individual to determine whether any portion of his or her Roth IRA distribution is taxable and/or subject to the 10% early-distribution penalty.
You must file Form 5329 as you received an early distribution from a R-IRA, the amount on line 23 of Form 8606
32; I guess you need to contact your mort lender for sure; in my opinion, aslongas you w/d money from your r0ira, yes you can qualify you for the exception.