IRA Distribution to Purchase a Home

Early Retirement Distribution For First-Time Homebuyers May Have Tax Impact

Many taxpayers have been misinformed. They are under the impression that it is possible to withdraw money, without any tax burden if they use the money to purchase their first home, from their IRA (retirement fund) before they reach the proper retirement age of 59 and a half.

To be clear, however, if an individual withdraws money from his or her IRA before the age of 59 and a half, they are subject to an additional 10% penalty; or what is referred to as an ‘early distribution tax.’

If you are using the money from your retirement account to purchase your first home, the 10% penalty will be eliminated, but only up to $10,000 of the amount you withdraw from the IRA.  You  will also have to pay taxes on the withdrawn amount, so it is therefore important that you have your financial or tax professional withhold the taxes with the distribution.

There are other instances where there is an exception to the 10% penalty, which are usually for educational and conditional medical expenses, or if you are totally and permanently disabled.  But always contact your accountant for the best advice before withdrawing money from your IRA.