Purchasing a home is expensive, leaving many would-be buyers feeling cash-strapped. If that’s you, you might be considering taking some money from your traditional IRA to help fund the purchase. But should you? After all, a 10% penalty typically applies to IRA withdrawals before age 59 1/2. The good news is that there’s an exception to the penalty for certain home purchases, subject to a lifetime limit of $10,000.
To qualify, you must purchase an eligible “first-time” principal residence for yourself, your spouse, your child, your spouse’s child, your grandchild, or your parent or other ancestor. In addition, if applicable, neither you nor your spouse can have owned a principal residence within the two-year period that ends on the acquisition date. The acquisition date is when you enter a binding contract to buy the home or when the building or rebuilding begins.
Timing is critical. The funds must be spent to pay qualified acquisition costs within 120 days of the day you receive the withdrawal. Qualified acquisition costs include the costs of buying, building or rebuilding a home, plus any usual or reasonable settlement, financing or other closing costs.
Contact the office with questions.