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I am looking to purchase my first home in August of 2002 and I am trying to determine how much money I will have for my downpayment.

I currently have $2000 in a Roth IRA (2000 tax year) and I am looking to deposit another $2000 for the 2001 tax year and possibly more for 2002. Can I use any of this money as a qualified withdrawal for my first-time home purchase? Can I use all of it including earnings?

None of this is converted, all directly deposited. Please help
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I currently have $2000 in a Roth IRA (2000 tax year) and I am looking to deposit another $2000 for the 2001 tax year and possibly more for 2002. Can I use any of this money as a qualified withdrawal for my first-time home purchase? Can I use all of it including earnings?

You can use any of the actual contributions for anything (its the Trad IRA and 401K which limit the use of no-penalty withdrawals.) You can't use the earnings for anything without paying a penalty. However, I'm guessing you don't have much in the way of earnings in there yet anyway.

I'd hold off on the 2002 contribution until you get settled in the house and see what your immediate expenses might be besides downpayment/closing costs.

- Tom
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I currently have $2000 in a Roth IRA (2000 tax year) and I am looking to deposit another $2000 for the 2001 tax year and possibly more for 2002. Can I use any of this money as a qualified withdrawal for my first-time home purchase? Can I use all of it including earnings?

You can use any of the actual contributions for anything (its the Trad IRA and 401K which limit the use of no-penalty withdrawals.) You can't use the earnings for anything without paying a penalty. However, I'm guessing you don't have much in the way of earnings in there yet anyway.

I'd hold off on the 2002 contribution until you get settled in the house and see what your immediate expenses might be besides downpayment/closing costs.


That is not correct (unless I'm mistaken.) You can not take money out of a Roth for 5 years without penalty, unless you meet one of the exceptions. In other words, you put money in during 2000 and would have to wait 5 years to take it out.

However, one of the exceptions is a first time home purchase(10k limit). So, in this case I believe you are okay.

Also, my suggestion is different. I'd still make the contribution for 2001 and another $3000 for 2002. I would suggest coming up with the money for the house from a different source. The tax benefit of the Roth IRA isn't something to throw away. It is great to be able to let your money grow tax free forever (or until the tax law changes).

justpatrick
ps. Some more info...
From the MF IRA area....

http://www.fool.com/money/allaboutiras/allaboutiras.htm

Exceptions
The early withdrawal penalty does not apply to distributions that:

Occur because of the IRA owner's disability. (This can be a very narrow definition, so if you get a severe paper cut, don't consider a Roth IRA distribution for a disability until you review IRS Code Section 72(m)(7) and IRS Publication 590.)


Occur because of the IRA owner's death.


Are a series of "substantially equal periodic payments" made over the life expectancy of the IRA owner.


Are used to pay for unreimbursed medical expenses that exceed 7 1/2% of adjusted gross income (AGI).


Are used to pay medical insurance premiums after the IRA owner has received unemployment compensation for more than 12 weeks.


Are used to pay the costs of a first-time home purchase (subject to a lifetime limit of $10,000).


Are used to pay for the qualified expenses of higher education for the IRA owner and/or eligible family members.


Are used to pay back taxes because of an Internal Revenue Service levy placed against the IRA.
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That is not correct (unless I'm mistaken.) You can not take money out of a Roth for 5 years without penalty,

Sorry, but you are mistaken. You can take your contributions out of a Roth at any time without tax or penalty.

Conversions from a traditional IRA may be withdrawn after 5 years OR reaching age 59 1/2 without tax or penalty.

Earnings will be tax and penalty free only if the Roth has been open 5 years AND you are 59 1/2.

--Peter
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Peter,

Thanks for the correction of my correction. :)

Earnings will be tax and penalty free only if the Roth has been open 5 years AND you are 59 1/2.

or you meet one of the exceptions...one of which is first time home buyer.

So, the answer to the original question is YES you CAN take the money out without paying a penalty if you are a first time home buyer. (Now, whether you SHOULD or not is another matter).

justpatrick
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Me:
Earnings will be tax and penalty free only if the Roth has been open 5 years AND you are 59 1/2.

justpatrick:
or you meet one of the exceptions...one of which is first time home buyer.

The exception will only eliminate the penalty. It wouldn't eliminate the tax on the Roth earnings. Which kinda defeats the major purpose of a Roth.

--Peter
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That is not correct (unless I'm mistaken.) You can not take money out of a Roth for 5 years without penalty, unless you meet one of the exceptions. In other words, you put money in during 2000 and would have to wait 5 years to take it out.

You are mistaken.

You can take the regular contributions out of the Roth IRA at any time for any reason, no tax, no penalty. See IRS (http://www.irs.gov) Publication 590 (http://www.irs.gov/forms_pubs/pubs/p590toc.htm), specifically, Chapter 2, section "Are Distributions From My Roth IRA Taxable?" (http://www.irs.gov/forms_pubs/pubs/p5900204.htm), which starts with:

You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s).

Later on there is a worksheet where one figures how much of the distribution is taxable and how much is subject to 10% penalty, and working through that worksheet confirms that return of regular contributions are neither taxable nor have a penalty. (You still have to file another form with your tax returns showing the distribution, even though it isn't taxable.)

I'd still make the contribution for 2001 and another $3000 for 2002. I would suggest coming up with the money for the house from a different source. The tax benefit of the Roth IRA isn't something to throw away. It is great to be able to let your money grow tax free forever (or until the tax law changes).

I agree! This isn't something one can tap into and in later years replenish, unlike a regular savings or a regular investment account.
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