How to Buy a Home With IRA Money
Determine if you qualify as a first-time homebuyer., See if your spouse qualifies as a first-time homebuyer., Prepare to pay taxes on your IRA withdrawal., Purchase or begin constructing your new home within 120 days of your Traditional IRA...
Step-by-Step Guide
-
Step 1: Determine if you qualify as a first-time homebuyer.
First-time homebuyers can use $10,000 of their Traditional IRA funds towards the purchase of a new home, without incurring a 10% penalty for taking the money before the age of 59 ½.
The IRS defines a first-time homebuyer as someone who has not owned a primary residence during the past two years.
Even if you owned a home more than 2 years ago, you will still qualify as a first-time homebuyer.
Owning a cottage or recreational property does not impact your status as a first-time homebuyer. -
Step 2: See if your spouse qualifies as a first-time homebuyer.
If legally married and buying the property together, you and your spouse may each withdraw $10,000 from your Traditional IRAs without penalty.
The $10,000 per-person limit is a lifetime limit, so you can't withdraw $5,000 twice in two different home situations.
You can also qualify for the $10,000 exemption if you're helping your spouse, child, grandchild or parent buy a home. , You will need to pay federal and state taxes on the money you take from your Traditional IRA, as it will be considered income by the Internal Revenue Service.
This may significantly lessen the total amount available to purchase a house.
For example, if you are in the 25 percent tax bracket, your $10,000 withdrawal will translate into only $7,500. , Failing to meet this deadline means that you will have to pay a penalty to the IRS.
Remember to retain a dated copy of the purchase or construction contract, and copies of the documents you sign.
The penalty paid to the IRS in this case is 10% on withdrawn money.
In addition, the withdrawal is taxed at the same rate as your regular income.
In addition to a downpayment, your IRA money can be used for other acquisition costs, including building or repairs to the house, closing costs and financing fees. -
Step 3: Prepare to pay taxes on your IRA withdrawal.
-
Step 4: Purchase or begin constructing your new home within 120 days of your Traditional IRA withdrawal.
Detailed Guide
First-time homebuyers can use $10,000 of their Traditional IRA funds towards the purchase of a new home, without incurring a 10% penalty for taking the money before the age of 59 ½.
The IRS defines a first-time homebuyer as someone who has not owned a primary residence during the past two years.
Even if you owned a home more than 2 years ago, you will still qualify as a first-time homebuyer.
Owning a cottage or recreational property does not impact your status as a first-time homebuyer.
If legally married and buying the property together, you and your spouse may each withdraw $10,000 from your Traditional IRAs without penalty.
The $10,000 per-person limit is a lifetime limit, so you can't withdraw $5,000 twice in two different home situations.
You can also qualify for the $10,000 exemption if you're helping your spouse, child, grandchild or parent buy a home. , You will need to pay federal and state taxes on the money you take from your Traditional IRA, as it will be considered income by the Internal Revenue Service.
This may significantly lessen the total amount available to purchase a house.
For example, if you are in the 25 percent tax bracket, your $10,000 withdrawal will translate into only $7,500. , Failing to meet this deadline means that you will have to pay a penalty to the IRS.
Remember to retain a dated copy of the purchase or construction contract, and copies of the documents you sign.
The penalty paid to the IRS in this case is 10% on withdrawn money.
In addition, the withdrawal is taxed at the same rate as your regular income.
In addition to a downpayment, your IRA money can be used for other acquisition costs, including building or repairs to the house, closing costs and financing fees.
About the Author
Noah Barnes
A seasoned expert in automotive, Noah Barnes combines 11 years of experience with a passion for teaching. Noah's guides are known for their clarity and practical value.
Rate This Guide
How helpful was this guide? Click to rate: