Can I, without tax penalties, use the IRA I inherited from my father to buy a home that I will live in? He was 72 and had started taking small payouts on it.

By Denise Appleby AAA
A:

If you inherited an IRA from someone who was not your spouse at the time he/she died, the amounts that you receive as a distribution from the IRA will never be subject to any early-distribution penalties. However, amounts you receive will be treated as ordinary income (for you) and may be subject to income tax. The exception regarding distributions used to purchase a first-time home only applies to those IRAs you established and contributed to yourself, not those you inherited. (For more details on the exception for the first-time home purchase, see the "Distributions" section of our IRA tutorial.)

Caution: Because your father died after age 70 ½ and started distributions, you are required each year to distribute a minimum amount from the IRA you inherited from him. This amount is referred to as a required minimum distribution and is calculated using your age, beginning the year after the year your father died. Your IRA custodian should be able to assist you with this calculation. If you fail to distribute at least the minimum amount each year, you could owe the IRS 50% of the amount you failed to distribute.

Note: The rules vary for spouse beneficiaries.

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS

  1. Does the bank set up an escrow account for the buyer and seller in a home sale?

    Learn about the process of escrow and who is responsible for setting up escrow accounts for the buyer and seller in the purchase ...
  2. Who manages an escrow account?

    Managing an escrow account is a job for a trusted and experienced service provider. Discover the best personal finance solutions ...
  3. How does a defined benefit pension plan differ from a defined contribution plan?

    Learn the differences between defined benefit plans and defined contribution plans when reviewing employer-sponsored qualified ...
  4. What are the best ways to pay off my mortgage quickly?

    Learn how mortgage payments may be reduced and how to save thousands on mortgage loans by lowering the interest and principle ...
RELATED TERMS
  1. Self Invested Personal Pension (SIPP)

    A tax-efficient retirement savings account available in Great ...
  2. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
  3. Deferred Tax Asset

    A deferred tax asset is an asset on a company's balance sheet ...
  4. Commercial Real Estate Loan

    definition of a commercial real estate loan
  5. Gold IRA

    Definition of Gold IRA
  6. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...

You May Also Like

Related Articles
  1. Professionals

    Are Longevity Annuities in 401(k)s a ...

  2. Home & Auto

    Real Estate Face-Off: Zillow Vs. Trulia

  3. Professionals

    Why Retirement Advice Is Better But ...

  4. Professionals

    Coming Soon: Private Equity In 401(k) ...

  5. Professionals

    Ways To Cut 401(k) Expenses

Trading Center