IRA early distribution penalty exemption for a first time homebuyer - Q about timing?

Question

I'm in a lower tax bracket this year than next. I'm wondering if I can take out $10,000 from my IRA by the end of THIS year, have it taxed as income received THIS year, but purchase the home NEXT year, within the 120-day limit of course, and still qualify for the penalty exemption. Or would the income count toward NEXT years'?

Answer 1

This is a great idea. Obviously you know that even though you need to include the disbursement as income, you can avoid the 10% penalty if you use the proceeds (up to $10,000 over your lifetime) for a "1st time home purchase". You can not have any interest in a home for the 24 months prior to the purchase of the home to get the "1st time" status.

The year you need to include the income is the year in which the money is disbursed, not necessarily the year in which you settle on the home. Please pay within the 120 day window. I can't see anywhere where it allows you to take the money out AFTER you pay for the home, so be sure to take it out earlier.

Answer 2

If you make an early redemption for an IRA account for your first home purchase, the investment firm that holds your IRA should "code it as distributed" on the day of distribution + a possible 3 days for processing. Your duty is to purchase the home within 120 days.

This is also similar to adding to your ROTH IRA up until the tax deadline. There are exceptions and timelines for all investments.

I have worked in investments and am quite sure on this but you may want to check on how your company codes the distribution.

Good luck on getting your new house ... how exciting!

Answer 3

you may nonetheless would desire to pay tax on the withdrawal on the tax value which you land up immediately you upload that 10k on your mixed earnings on the tip of the year - in all probability 25%?