Accounting question dealing with buying a house and cashing out an IRA.?

Question

I have a traditional IRA with $10,119 in it and I would like to withdraw this money to buy my first house. According to the IRS website, I can take an early withdrawal of up to $10,000 for a first house without paying the 10% penalty. If I withdraw the full amount, would I only be charged the penalty on the $119 or would I have to pay it on the $10,119 since it is more than the maximum amount I am allowed to withdarw without the penalty?

Answer 1

The first $10,000 would be penalty free, and the remainder subject to the 10% penalty. To avoid the penalty on the $119, just withdraw an even $10000. However note that you will avoid the penalty on this transaction, but not the taxes on any withdrawals made on your traditional IRA. Since the money you invested in the traditional IRA was before taxes, you will have to pay tax on all the withdrawals. You should consider the taxes due on any withdrawals to figure your true net amount of funds to be available for your house.

Answer 2

I recently had a client have this same situation. You would have to pay the 10% penalty on only the excess, which would be the $119. You will more than likely get a 1099-R at the end of the year showing the withdrawal of the $10,119, with a distribution code of 1 - early distribution, no exception, and the IRA/SEP box checked off. You will need to fill out form 5329, and indicate that your exception to the 10% penalty is the code for first time home buyer, and that your exception would be $10,000 if you used the entire $10,119. And you will have to pay taxes, federal and probably state as well on the withdrawal.

Answer 3

You might as well leave the $119 in - it won't make that much difference to you. But if you did take it all out, the penalty would only be on the $119.

But remember that you still have to pay income taxes on ALL of the withdrawal, so you won't get the full $10,000. The amount of the income tax will depend on your total taxable income for the year, including the IRA withdrawal.

Answer 4

you in all likelihood isn't waiting to discover any no-threat places which will beat inflation, even notwithstanding inflation is very low as we talk. If I were you, i ought to easily placed it right into a monetary employer funds marketplace account or CD. you received't get a lot activity, yet you also received't ought to problem about dropping funds both.

Answer 5

you shoulda just gone with the Roth...