I withdrew $5k from my roth IRA in 06 to purchase a home. Will i have to pay taxes on the $5k?

Question

I thought that if you withrdrew money from an IRA or took a hardship for the purchase of your primary residence that it was not taxable but from doing my taxes via turbo tax, i'm being taxed at approx 37% for the early withdrawal. Is this right?

I thought that if you withdrew money from an IRA or took a hardship for the purchase of your primary residence that it was not taxable but from doing my taxes via turbo tax, I’m being taxed at approx 37% for the early withdrawal. Is this right? Another piece of information that may be important is that the money was rolled over into the Roth ira from my previous employer plan and I then withdrew it. So I did not directly make those contributions per se.

Oh, yeah, this all took place in 2006. Meaning the IRA was established and the money was rolled over in 2006 from my former employer's plan. There was no 5 year establishment of the IRA.

Answer 1

You can withdraw the contributions you've made, tax-free.

So if you've contributed $5k or more into your Roth IRA, then you shouldn't get taxed on it.

But if you've contributed less, and you only have $5k in there because of gains, then you can get taxed on the difference.

Also, if you converted a traditional IRA into a Roth IRA, the funds you've converted are only tax-free after five years.

UPDATE: Did the money transferred into your current Roth IRA come from a 401(k), or was it a Roth 401(k)?

Answer 2

You might need to recheck the rules--and how you prepared your return.

If you withdrew the Roth IRA money for a FIRST-TIME home purchase, there are special rules that might exempt the Roth IRA from taxation.

The tax treatment will also be impacted by how long it has been since you made your first contribution to the Roth IRA. Did five years or more pass between January 1 of the year you made the first contribution and the date of your withdrawal?

Additionally, did you withdraw an amount that is greater than the amounts you have contributed to the Roth IRA?

Answer 3

both way you will pay the similar volume in taxes. yet once you withdraw out of your classic IRA you'll also pay a 10 %. penalty when you're less than age fifty 9 a million/2. when you're youthful you money is larger ideal off in a roth as well so if you're able to locate the money for the taxes it probable will pay to roll it for the time of correct right into a roth.

Answer 4

If you withdrawal $5k from Roth IRA, the contribution is always tax free. You may be hit with 10% penalty for the earning only if it is not a qualified distribution. However, the distribution used for qualified first time homebuyer expenses are qualified expense if the holding period is more than 5 years. Here is a reference:

http://www.finance.cch.com/text/c40s10d310.asp

I don't think you did your tax correctly. I suggest you seek a local qualified tax professional to handle your tax return.

Zhicheng Lai, EA in MD
Go to http://www.1040.com/zhicheng to file your return as low as $6.95

Answer 5

if it was a qualified first time home purchase (up to 10 grand, i belive), then no. if was not, and you you are under 59 and a half, you must pay a 10% early withdraw fee. plus any amount of of the IRA that is withdrawn that is from interest is taxable. the principle is not.

Answer 6

sady yea, some time things suck