Did you know that you can use your ROTH or Traditional IRA to purchase your 1st home?

Saving enough for the down payment on a home purchase is daunting…there are caveats you need to consider

Are you a first-time home buyer?

Here are the criteria for an IRA distribution:

• • Purchase must be a principal residence.
  • Person whom resides must be the owner of the IRA or a family member
  • A grandparent could make the purchase for a child or grandchild
  • Purchaser must be a “first-timehomebuyer”
  • A max of $10,000 as qualified first-time homebuyer distributions (a lifetime limitation)
  • You must use the funds within 120 days for qualified acquisition costs

Using your IRA would allow you to take a distribution for your home down payment without paying prepayment penalties or interest on the funds.

What is considered a Principal Residence?

This is the primary location where a person resides. It could be a house or a condo, as long as it is where you live most of the year. Vacation homes do not qualify.

Who can the Principle Residence be for?

The IRA distribution can only qualify if the purchase is for yourself, a spouse, your child, grandchild or ancestor, or your spouse’s child, grandchild or ancestor.

What is the Date of Acquisition and what makes you a 1st time home buyer?

The IRS states that if you have not had financial interest in a home in the past two years prior to the closing date on your new home, you’re technically a first-time home buyer. For instance, you sold your previous residence on November 1, 2015. If you have not owned a home since that date, you can use the funds in your IRA to put a down payment on a home, if the contract is signed after November 1, 2017.

The IRS checks your date of acquisition, when purchasing a home. The “date of acquisition” for your new home is not the actual closing date. This is the date that you sign a binding contract to purchase the home, or the date that the building or rebuilding of your new home started.

How much can I withdraw?

The maximum penalty free withdrawal from an IRA is $10,000.

There is an exception for a ROTH- after holding a ROTH for over 5 years; you may withdraw contributions made to a ROTH account without limit.

What penalties can you occur?

With the ROTH, withdrawal contributions are tax free, because you have already paid income tax on your invested money when you made the contribution into your ROTH IRA. With the Traditional or ROTH, you can withdraw up to $10,000, if you are married $20,000. The catch is after withdrawing over $10,000 from your ROTH earnings, you will be subject to ordinary income taxes and a 10% penalty.

Should you remove money from your IRA early?

1. 1. Retirement decisions can have a long-term effect on your future! If you withdraw funds from your IRA now, you lose the ability to grow your money tax-free. Meaning that all money inside the IRA grows tax-free and compounds over the next 10, 20 or 30 years, until retirement.
   2. The money you withdraw from your IRA now will be counted as taxable income in the year that you take the funds out. Depending on your current income, this could move you into a higher tax bracket, making your taxes higher for that fiscal year’s return.
   3. The big question… should I withdraw? You should look for alternatives because you are losing the tax-free growth over time and depleting something you’ve worked hard to save. Look at the big picture…talk to your financial advisor. Make sure you are making right decision in terms of taxes, penalties and your financial security.

Written by: ||cassandra hartman, office manager||