Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
So I know the IRS allows early distributions -- $10,000 to be exact -- for first-time home-buyers.

However, I am confused about what the rules are for Roth's vs. Rollover, and combining the two for first-time-home-buyers.
Print the post Back To Top
No. of Recommendations: 0
So if I go over the $10,000 would it be better to apply the $10,000 limit more to the Rollover, since the Roth will be less taxed ?

Also, can I claim $10,000 in 2015 and say it's for the deposit, and then $10,000 again in 2016 and say it was for the closing?
Print the post Back To Top
No. of Recommendations: 0
The $10,000 limit is a lifetime limitation on the amount of withdrawals in total that can be pulled out of all your traditional or Roth IRAs penalty free under the first-time homebuyer provision.
Print the post Back To Top
No. of Recommendations: 7
So I know the IRS allows early distributions -- $10,000 to be exact -- for first-time home-buyers.

Well, you seem to kind of 'know' that, as in, you've heard that it's allowed. But despite you indicating I think I am good to go on this in your previous postings, based on your questions, I would still say your statement of I had no idea what I was doing still seems to apply.

However, I am confused about what the rules are for Roth's vs. Rollover, and combining the two for first-time-home-buyers.

Have you looked at IRS Pub 590-B? https://www.irs.gov/pub/irs-pdf/p590b.pdf

The Federal rules are all laid out in that publication. (If your state and/or municipality collect income taxes, they may also have rules that you will need to research.)

Here's a high level summary of the Federal withdrawal rules:

- Traditional IRA with no after-tax money contributed:
Whenever you withdraw money that is not rolled over (including any conversions to a Roth account), you will incur taxes for ordinary income at your marginal rate. In addition, if you are under 59 1/2, unless you can show that you meet one of several exceptions, you will owe an additional penalty of 10%

- Traditional IRS with after-tax money contributed:
Same rules as above, with the added complication that all withdrawals must be pro-rated between the before-tax and the after-tax portions. The after-tax contributions should have been tracked on a Form 8606 in order to establish the after-tax basis when they were made, and any withdrawals must also be tracked on a Form 8606 to track the basis.

-Roth IRA:
You first have to establish whether a distribution is a qualified distribution. This includes requirements of the Roth IRA being established at least 5 years prior, the IRA owner being over 59 1/2 or disabled, or meeting the requirements for a FTHB. If the distribution is not qualified, then you may owe taxes and a 10% penalty, or you may owe nothing, depending on the rules for ordering distributions:
- All contributions (not conversions) are available for withdrawal at any time, with no penalty.
- Converted amounts are considered on a FIFO basis by year, and each conversion year has a separate 5 year clock that will help determine potential taxes and/or penalties

So if I go over the $10,000 would it be better to apply the $10,000 limit more to the Rollover, since the Roth will be less taxed ?

'Better' is subjective, depending on what you are attempting to accomplish, and if you have criteria around making the withdrawal. Do you have a certain amount you are trying to withdraw, net after taxes? Are you trying to leave as much money in your Roth IRA as possible, or do you care which type of account it comes from? Do you have enough contributions to your Roth IRA to cover the amount you are trying to withdraw, without having to use the FTHB exception?

Also, can I claim $10,000 in 2015 and say it's for the deposit, and then $10,000 again in 2016 and say it was for the closing?

No, your lifetime total FTHB exception withdrawal from any/all of your IRAs is limited to $10k. From IRS Pub 590-B:
When added to all your prior qualified first-time homebuyer distributions, if any, total qualifying distributions cannot be more than $10,000.

AJ
Print the post Back To Top
No. of Recommendations: 0
The $10,000 limit is a lifetime limitation on the amount of withdrawals in total that can be pulled out of all your traditional or Roth IRAs penalty free under the first-time homebuyer provision.

At the risk of confusing the OP, who seems pretty confused already, there is a way to "reset" the lifetime limitation. If you use the $10K FTHB provision and subsequently sell the home, you can requalify for another FTHB if you do not own another home for two years. Before you attempt to use this reset, read the rules very carefully.

Ira
Print the post Back To Top
No. of Recommendations: 0
I mean I'm using turbotax anyway so i'm going to put down the Roth part as an early withdrawal, and the other ira as first time home purchase and let it do the work. Thanks all.
Print the post Back To Top
No. of Recommendations: 0
SlickNik is already one of your Favorite Fools. - TMF Server

David
Print the post Back To Top