What are the consequences if I cash out part of my IRA to buy my first home?

Question

I quit my job and rolled my 401K account into a Rollover IRA. Now I'm in the process of buying my first home and would like to use part of the funds as down payment.

Answer 1

income tax will bite you in the butt!!!

Answer 2

According to IRS Pub. #590, you can get up to $10,000 in IRA distributions without incurring the 10% penalty (prior to age 59-1/2) if you are buying a first home. I would definitely check with a tax-advisor before doing this, but here is the text from Pub. 590.

First home. Even if you are under age 59½, you do not have to pay the 10% additional tax on up to $10,000 of distributions you receive to buy, build, or rebuild a first home. To qualify for treatment as a first-time homebuyer distribution, the distribution must meet all the following requirements.
It must be used to pay qualified acquisition costs (defined later) before the close of the 120th day after the day you received it.

It must be used to pay qualified acquisition costs for the main home of a first-time homebuyer (defined later) who is any of the following.

Yourself.

Your spouse.

Your or your spouse's child.

Your or your spouse's grandchild.

Your or your spouse's parent or other ancestor.

When added to all your prior qualified first-time homebuyer distributions, if any, total qualifying distributions cannot be more than $10,000.

Answer 3

Not sure a lender will fund you as you have quit your job ,
They usually want a 2 yr min on the job .

As for IRA , in addition to becoming taxable that year ,
There will be an additional 10% taken from you as a penalty and the loss will Not be tax decutible .

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Answer 4

I heard on one of those finance programs on the radio where people call in and ask questions, that a person should never use their IRA for a deposit on their home. I think they can be converted to a Roth.

Answer 5

while a guy or woman hires you for money which ability they do no longer opt to handle the authorities and fica and coverage, etc. so as that they hire you as an autonomous contractor and additionally you get to pay taxes on that money on the tip of the 365 days. the capture with that money situation is that as an autonomous contractor you will ought to have a employer license with the state for the interest you're doing, and once you report your taxes you will ought to report a sort "C". you will ought to be in employer for 5 years in the previous that artwork and income ought to be shown on your residing house application. purely before the 2008 foreclosures fiasco lots of persons did no longer instruct their income and now they are dropping their residences. in the previous you flow to a realtor you will ought to flow on your economic enterprise, instruct them a image of a house you would be wanting to purchase, fill out an application and get them to be sure how lots they'll loan you, many times this is 80% and additionally you ought to come lower back up with the stability of 20%, and additionally you will ought to pay final expenses. while you're identifying to purchase a foreclosed residing house then it could have been stripped and ruined so which you will ought to take a place money to repair it so it seems that ok. regardless of if this is a extra contemporary or older residing house you will nevertheless ought to look at issues that would have long gone incorrect interior the 365 days the residing house replaced into geared up. you will ought to pay PITI month-to-month (central, interest, taxes, coverage) on your loan employer so which you will ought to understand you're able to have sufficient money all that. surely you do no longer start up somewhat paying on the residing house till 10 years have elapsed, what you pay for the 1st ten years is on the interest, so in case you attempt to sell your residing house in the previous 15 years or extra you are going to lose money. ok, so which you get authorized by ability of the economic enterprise then take that letter of ways lots they'll lend you to a realtor and that they'll help you hit upon a house interior of or below your funds (what you're able to have sufficient money).

Answer 6

10% penalty if under age 59 1/2 plus the amount you take is now taxed this year

Answer 7

Mike answered 100% correctly.

Answer 8

You are looking at a tax nightmare.

Answer 9

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