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Author: DrMerlot Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121565  
Subject: IRA First Home Exception and two kids Date: 3/27/1998 5:41 PM
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Dear Tax Gurus: Thank you for the info on Higher Education expenses. However, on the pathway to enlightenment and finacial bliss, another road leads me to help my kids with their first home. To avoid the 10% additinal tax on early withdrawals, I understand that I can take a distribution up to 10K$. Is this per kid? If not, could I pay it back to my IRA (the oldest will hopefully repay me) and then give the other kid the 10K$? Can a "first home" be a mobile home, RV, or houseboat? Thank you in advance for your help.
Dr. Merlot
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Author: KATinChicagoland Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3106 of 121565
Subject: Re: IRA First Home Exception and two kids Date: 3/29/1998 8:57 AM
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<<Dear Tax Gurus: Thank you for the info on Higher Education expenses. However, on the pathway to enlightenment and finacial bliss, another road leads me to help my kids with their first home. To avoid the 10% additinal tax on early withdrawals, I understand that I can take a distribution up to 10K$. Is this per kid?>>

I'm afraid not. The law reads as follows:

"The aggregate amount of payments or distributions received by an individual which may be treated as qualified first-time homebuyer distributions for any taxable year shall not exceed the excess (if any) of--
(i) $10,000, over
(ii) the aggregate amounts treated as qualified first-time homebuyer distributions with respect to such individual for all prior taxable years."

<<If not, could I pay it back to my IRA (the oldest will hopefully repay me) and then give the other kid the 10K$?>>

No, "repayment" of that amount to the IRA would be an excess contribution and would result in a penalty.

<<Can a "first home" be a mobile home, RV, or houseboat? Thank you in advance for your help.>>

It has to be a principal residence, not just a place with sleeping quarters that is used part of the time. If it meets the requirement of being a principal residence, a mobile home or a houseboat would qualify according to a standard tax reference, and I see no reason why an RV would not qualify as well.

KAT in Chicagoland
www.fairmark.com
Tax Guide for Investors
Now with expanded and revised
Roth IRA information



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Author: DrMerlot Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3108 of 121565
Subject: Re: IRA First Home Exception and two kids Date: 3/29/1998 1:38 PM
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Dear Kat guru: Thanks for the info regarding the first home exception. As I now understand it, I have up to 10K$ to use, without the 10%additional tax, for all my kids' first homes. That isn't much, but is better then nothing. Does my wife also have the 10K$ limit or is she bound by my distribution? We file jointly.
Thanks again for your help
Dr. Merlot

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Author: KATinChicagoland Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3113 of 121565
Subject: Re: IRA First Home Exception and two kids Date: 3/29/1998 6:08 PM
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<<As I now understand it, I have up to 10K$ to use, without the 10%additional tax, for all my kids' first homes. That isn't much, but is better then nothing. Does my wife also have the 10K$ limit or is she bound by my distribution? We file jointly.>>

As I understand the rule, you would each have a separate $10,000 limit even if you file jointly -- but you may want to wait for further guidance on this question before relying on this result.

Another point I should have mentioned in my previous post. You mentioned the possibility of having the first child repay the amount you provided for the home purchase so it would be available for the second child. As I noted, you can't recontribute this amount to your IRA. But of course you can set these dollars aside in a non-IRA account, and unless there are many years between the time your first child repays this amount and the time your second child needs it to buy a home, it won't make much difference that it wasn't in the IRA in the meantime.

You should also be aware that if you qualify for a Roth IRA, and the home purchase is at least five years away, you can get an added benefit when the IRA is used for a first-time homebuyer. This particular use of a Roth IRA is the only one that permits tax-free withdrawals before age 59-1/2 (apart from death or disability). If you meet all the requirements, this choice may provide a much more efficient use of your money than if you use a regular IRA and take a taxable (but non-penalty) distribution for this purpose.

KAT in Chicagoland
www.fairmark.com
Tax Guide for Investors
Now with expanded and revised
Roth IRA information


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Author: DrMerlot Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3115 of 121565
Subject: Re: IRA First Home Exception and two kids Date: 3/29/1998 6:54 PM
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Dear Kat Guru: Again thanks for the timely and enlightening info. Unfortunately, the housing isssue may come fairly quickly for both. My kids will repay me by putting the money into their Roth IRAs. It's sor of a gift with a future.
Dr. Merlot

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