IRA’s consist of two types- Traditional and Roth. Funds contributed to traditional IRAs are “before-tax” contributions because they are made and, thus, lower taxable income and tax liability.
However, when traditional IRA funds are withdrawn (and not rolled over to another pension- type account), the funds are fully taxable regardless of the age or other circumstances of the taxpayer.
If the IRA is Roth, IRA withdrawal for home purchase of up to $10,000 for a “first home” are completely free of tax and penalty (as long as the funds have been in the IRA for five years or more).
The 1997 Taxpayer Relief Act changed some IRA rules to allow certain types of IRA withdrawals early, without penalty, in some circumstances.
The rules for taking a distribution from a Roth IRA to finance a first time home purchase are slightly different than those for a traditional IRA. The law defines a ‘first time home buyer” as someone who has not owned for 2 years. So the law helps even newer home buyers.
If you are a first time homebuyer and you meet the Roth IRA rules as a qualified distribution (after the account has been open for 5 yrs)you can withdraw $10,000 or less to purchase a home (if the funds are used directly toward the home acquisition-which includes down payment, closing costs, etc).
If the withdrawal counts as a qualified distribution you will avoid paying income taxes and early withdrawal fees. If you are married, and you and your spouse are first time homebuyers, you can each pull from retirement accounts, giving you $20,000 to use for a home purchase.
If you have not set money aside for your home purchase or don’t have a Roth IRA to tap- then you might want to consider other down payment options. Capstar Lending offers Mortgage Assistance Programs and other grant programs that will provide the funds for your down payment and closing costs.
Please consult your financial/tax advisor for more detailed information.
This is not a commitment to lend or extend credit. Restrictions may apply. Information and/or data is subject to change without notice. All loans are subject to credit approval.
Please call Todd Kurio, Residential Mortgage Loan Originator for more details. 512 459 2405, NMLS #214411/216616, firstname.lastname@example.org. Capstar Lending, Equal Housing Lender.