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Author: naygoo Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121585  
Subject: "holding period" requirement for IRA? Date: 7/30/2002 1:43 PM
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(cross-posted from Buying or Selling a Home, thanks TMFDj111)

I am weighing the option of taking a withdrawl from my traditional IRA to use as a down payment on a house next Spring. After searching old posts on the Buying or Selling a Home board, I found a post stating that there is a 5-year holding period requirement in order to take an IRA withdrawl and not get hit with the 10% early withdrawl penalty. Is this true, and if so, is it always the case or is there a way around it? I rolled my 401(k) from my previous employer into an IRA when I left the job 4 months ago. Obviously I won't have had the IRA for 5 years by next Spring. Any thoughts/advice/clarification you wise Fools could pass along would be greatly appreciated.

Thanks in advance,
naygoo
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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61051 of 121585
Subject: Re: "holding period" requirement for I Date: 7/30/2002 3:03 PM
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The five year holding period pertains to qualified withdrawals from Roth IRAs.

However, with traditional IRAs, the 10% penalty does not apply for a first time home purchase either.

buzman




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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61052 of 121585
Subject: Re: "holding period" requirement for I Date: 7/30/2002 3:57 PM
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What buzman said is true. One qualification is needed. The 10% penalty does not apply on up to $10,000 for a downpayment on a first home. The amount withdrawn is still taxed.

Debra

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 61065 of 121585
Subject: Re: "holding period" requirement for I Date: 7/31/2002 9:38 PM
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<<I am weighing the option of taking a withdrawl from my traditional IRA to use as a down payment on a house next Spring. After searching old posts on the Buying or Selling a Home board, I found a post stating that there is a 5-year holding period requirement in order to take an IRA withdrawl and not get hit with the 10% early withdrawl penalty. Is this true, and if so, is it always the case or is there a way around it? >>

As pointed out, you are confusing the rules with respect to a Roth IRA distribution and a traditional IRA distribution when speaking about the 5 tax year holding period. Hopefully you're not straight on that issue.

And, as also pointed out, you MAY be able to use the "first time" homeowner exclusion for up to $10k out of your traditional IRA, if you otherwise meet those qualifications. You can read more about those requirements in my article regarding the first time exclusion in the Tax Center.

Finally, as also pointed out, the first time exclusion is only a PENALTY exclusion. You'll still be liable for any income taxes generated by your traditional IRA distribution.

TMF Taxes
Roy

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