To help home buyers and sellers both novice and seasoned, UrbanTurf is running a series of primer articles this week about the buying and selling process.
A Roth IRA is one of those accounts that people feel is totally off limits until you reach the age of 59 1/2. But that is not entirely true.
A law passed in the late 1990s made it possible for first-time homebuyers to take out a $10,000 distribution from their Roth IRA for the purchase of a home, without incurring the 10 percent penalty that typically accompanies an early withdrawal of funds. The law requires that the IRA must have been open for at least five years.
While the distribution does not result in a 10 percent penalty, the owner of the Roth IRA may still have to pay taxes on the distribution. (The 10 percent penalty and taxes incurred are two different things.)
However, neither annual contributions to a Roth IRA or conversion money (funds from other retirement accounts that were rolled into the Roth) are taxed when withdrawn, only the earnings made on those funds. In other words, if you contributed $5,000 to the IRA and made $2,000 on that contribution, only the $2,000 would be taxed. So, if your Roth has been open for five years, chances are that you can take out the $10,000 without paying any taxes or penalties.
What makes this even a sweeter deal is the government’s definition of a first-timer. It is not just someone buying their first home, but rather anyone that hasn’t owned a home in the previous two years. The $10,000 maximum distribution can only be done once, as the government doesn’t want you dipping into your retirement savings on a regular basis.
- First Timer Primer: How Much Cash Do You Need to Buy a House?
- First-Timer Primer: The Mortgage Pre-Approval Process
- First-Timer Primer: How Do Mortgage Payments Work?
- First-Timer Primer: The Escalation Clause
- First-Timer Primer: A Condo Fee Tutorial
- First-Timer Primer: What is a Rent Back?
- First-Timer Primer: What is an Adjustable Rate Mortgage?
- First-Timer Primer: Taxes and Profit from Selling a Home
This article originally published at https://dc.urbanturf.com/articles/blog/first-timer-primer-how-a-retirement-account-can-help-buy-a-home/18071.
Most Popular... This Week • Last 30 Days • Ever
In this edition of First-Timer Primer, we look into the question of how to determine ... read »
The preferred mortgage product among most home buyers is the fixed-rate mortgage. How... read »
Here's what you need to know about reporting profit made from the sale of your home.... read »
A Roth IRA is one of those accounts that people feel is totally off limits until you ... read »
The latest edition of What $1.5 Million Buys includes a Falls Chuch home reminiscent ... read »
UrbanTurf has compiled virtual looks at large new developments around the DC region.... read »
Why condo fees are high in some buildings and low in others can be a difficult questi... read »
Virginia's homebuyer assistance programs can seem complex. This edition of First-Time... read »
When sellers haven't quite lined up their next house before their settlement date com... read »
In this edition of First Timer Primer, we take a closer look at what you are actually... read »
With this weekend's DC houseboat tour a day away, UrbanTurf thought it only fitting t... read »
President Obama travels to Denver this morning to sign the stimulus bill that has bee... read »
In this week's installment of Ask An Agent, a reader wonders if there is a rule for h... read »
As The Wharf prepares to begin construction, DC's houseboat community heads to its ne... read »
In this week's installment of Ask An Agent, a reader asks a fairly common question th... read »
DC Real Estate Guides
Short guides to navigating the DC-area real estate market
We've collected all our helpful guides for buying, selling and renting in and around Washington, DC in one place. Visit guides.urbanturf.com or start browsing below!
Intro guides for first-time home buyers
Awesome and unusual real estate from across the DC Metro