Advanced Underwriting Consultants

Question of the Day – January 8

Ask the Experts!

Here’s the question of the day.

Question:  My client wants to get money out of her traditional IRA to make a down payment on a first-time home purchase.  Can her husband make a withdrawal from his IRA for the same purpose?

Answer:  Yes.

Distributions from traditional IRAs are completely income taxable for most taxpayers, unless they have after-tax contributions in one or more traditional IRAs.  If the taxpayer has after-tax contributions in any IRA, the distribution will be partly income tax free.

If the taxpayer is younger than age 59 ½, the taxable part of the distribution may also be subject to the 10% premature distribution penalty.  There is a special exception to the penalty for distributions related to first-time home-buyers.

The home-buyer can be the taxpayer or a close member of the taxpayer’s family (including the taxpayer’s spouse).  To qualify for the exception, the money must be used within 120 days after distribution from the IRA for home purchase expenses.

A taxpayer can only claim use this exception to shelter up to $10,000 of distributions from the penalty tax during the taxpayer’s lifetime.  However, if both spouses have IRAs, they can both use this exception to withdraw up to $20,000 penalty tax free.

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