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  1. #1

    Default Allowed Roth IRA Distributions

    I converted to a Roth IRA pretty much since they became an option quite a few years back. I have a couple related questions pertaining to this url:

    http://www.irs.gov/taxtopics/tc428.html

    1. Am I reading this correctly in that one can make a distribution or even distributions to buy, build or re-build a first home, even though that person is not yet 59 1/2? I believe I'm reading it correctly, but seek confirmation...

    2. What exactly disignates a "first" home? While it seems very clear, it was not before as I recall first-time how owner credits being made available for folks who had not owned a home in the previous 5 or 10 years...

    Thanks much.

  2. #2
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    Default Re: Allowed Roth IRA Distributions

    1. Yes, once the account has been open for five years.

    2. The statute creating Roth IRA's, 26 USC 408A, refers you to 26 USC 72(t)(2) for the definition of qualified special purpose distributions. That in turn brings us to subsection (t)(8):
    Quote Quoting 26 USC 72(t)(8) - Qualified first-time homebuyer distributions
    For purposes of paragraph (2)(F)—

    (A) In general

    The term “qualified first-time homebuyer distribution” means any payment or distribution received by an individual to the extent such payment or distribution is used by the individual before the close of the 120th day after the day on which such payment or distribution is received to pay qualified acquisition costs with respect to a principal residence of a first-time homebuyer who is such individual, the spouse of such individual, or any child, grandchild, or ancestor of such individual or the individual’s spouse.

    (B) Lifetime dollar limitation

    The aggregate amount of payments or distributions received by an individual which may be treated as qualified first-time homebuyer distributions for any taxable year shall not exceed the excess (if any) of—
    (i) $10,000, over

    (ii) the aggregate amounts treated as qualified first-time homebuyer distributions with respect to such individual for all prior taxable years.
    (C) Qualified acquisition costs

    For purposes of this paragraph, the term “qualified acquisition costs” means the costs of acquiring, constructing, or reconstructing a residence. Such term includes any usual or reasonable settlement, financing, or other closing costs.

    (D) First-time homebuyer; other definitions

    For purposes of this paragraph—
    (i) First-time homebuyer - The term “first-time homebuyer” means any individual if—
    (I) such individual (and if married, such individual’s spouse) had no present ownership interest in a principal residence during the 2-year period ending on the date of acquisition of the principal residence to which this paragraph applies, and

    (II) subsection (h) or (k) of section 1034 (as in effect on the day before the date of the enactment of this paragraph) did not suspend the running of any period of time specified in section 1034 (as so in effect) with respect to such individual on the day before the date the distribution is applied pursuant to subparagraph (A).
    (ii) Principal residence - The term “principal residence” has the same meaning as when used in section 121.

    (iii) Date of acquisition - The term “date of acquisition” means the date—
    (I) on which a binding contract to acquire the principal residence to which subparagraph (A) applies is entered into, or

    (II) on which construction or reconstruction of such a principal residence is commenced.
    (E) Special rule where delay in acquisition

    If any distribution from any individual retirement plan fails to meet the requirements of subparagraph (A) solely by reason of a delay or cancellation of the purchase or construction of the residence, the amount of the distribution may be contributed to an individual retirement plan as provided in section 408 (d)(3)(A)(i) (determined by substituting “120th day” for “60th day” in such section), except that—
    (i) section 408 (d)(3)(B) shall not be applied to such contribution, and

    (ii) such amount shall not be taken into account in determining whether section 408 (d)(3)(B) applies to any other amount.

  3. #3

    Default Re: Allowed Roth IRA Distributions

    Great information! Thank you. This addressed both of my questions.

    For those who are legalese-challenged, in lay terms, what are the limitations on how much one can distribute for such purposes? I don't quite follow what this means:

    (B) Lifetime dollar limitation

    The aggregate amount of payments or distributions received by an individual which may be treated as qualified first-time homebuyer distributions for any taxable year shall not exceed the excess (if any) of—
    (i) $10,000, over

    (ii) the aggregate amounts treated as qualified first-time homebuyer distributions with respect to such individual for all prior taxable years.
    ============

    Thank you again for the great information.

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