A:

If you converted the funds less than five-years ago, you will not be able to meet the qualified distribution requirements. However, the amount you distribute for use toward the acquisition of a first home will not be subject to the 10% early-distribution penalty. Furthermore, if the amount is less than the amount you converted from your Traditional IRA to your Roth IRA, the amount will also be tax free. For example:

  • If you converted $10,000 or more and you distribute $10,000 for your first-time home purchase, the full $10,000 will be tax and penalty free.
  • If you converted $9,000 and you distribute $10,000, the additional $1,000 is counted as earnings and subject to income tax, but the $9,000 will be tax and penalty free.

In order for the transaction to be a qualified distribution, you must have had a Roth IRA for at least five years, and you must meet one of the following requirements:

  1. Be at least age 59.5
  2. Be disabled
  3. Be using the assets to purchase a first-time home
  4. Be receiving the distribution from a Roth IRA that you inherited from a deceased Roth IRA owner

Remember that the maximum amount that is eligible for the penalty-free treatment for a first-time home purchase is $10,000. This is a lifetime limit.

For more information on a qualified distribution, please see Tax Treatment Of Roth IRA Distributions.

This question was answered by Denise Appleby
(
Contact Denise)


RELATED FAQS
  1. What are the tax consequences of a Roth IRA distribution if the IRA holder is younger ...

    The tax treatment of a Roth IRA distribution depends on whether the distribution is qualified. Qualified distributions from ... Read Answer >>
  2. How can I use my Roth IRA savings to buy my first home?

    Use your Roth IRA to help fund the purchase of your first home, and find out about ways to access these funds even if you ... Read Answer >>
  3. I have several Roth IRA conversions, each with different custodians. When I spoke ...

    It is true that at any time you may take out (distribute) the amount you converted without paying tax on the amount because ... Read Answer >>
  4. I'm an 80 year old making increasing required minimum distribution (RMD) tax payments. ...

    First, some background information: the tax treatment of a Roth IRA distribution depends on whether or not the distribution ... Read Answer >>
  5. What is the tax rate of a Roth IRA if I withdraw it for the purchase of a house?

    Use your Roth IRA to fund the purchase of your first home, and learn how the distribution could qualify for a waiver of taxes ... Read Answer >>
  6. I retired and transferred part of my pension distribution to a Roth IRA. If I am ...

    The age 55 exception applies only to distributions from qualified plans and 403(b) accounts. Once the assets have been credited ... Read Answer >>
Related Articles
  1. Retirement

    Tax Treatment Of Roth IRA Distributions

    Learn the requirements for withdrawing funds tax and penalty free.
  2. Retirement

    How a Roth IRA Works After Retirement

    What retirees need to know about taxes, distributions and passing on your unspent savings to the next generation.
  3. Retirement

    Converting A Traditional IRA To A Roth

    When is it a good idea to convert traditional IRA funds into Roth IRA funds? And when does it not make sense?
  4. Retirement

    Roth vs. Traditional IRA: Which Is Right For You?

    To answer this question, you need to consider several of the factors we outline here.
  5. Retirement

    Converting Traditional IRA Savings To A Roth IRA

    Traditional IRA owners who want a Roth can convert their account. But should they?
  6. Retirement

    Why Now Is The Time For A Roth IRA

    Legislative changes in recent years make Roth IRAs worth a second look.
  7. Retirement

    5 Reasons to Convert a Roth To a Traditional IRA

    Here's a quintet of cases when the traditional IRA trumps the Roth version.
  8. Investing

    3 Reasons to Convert Your IRA to a Roth IRA

    Having an IRA is smart. Knowing when to convert it to a Roth IRA is smarter because it can give you and your heirs a welcome tax advantage.
  9. Retirement

    5 Secrets You Didn’t Know About Roth IRAs

    Being financially savvy requires knowing a few secrets about Roth IRAs, which, for some, are very attractive retirement instruments.
  10. Retirement

    6 Reasons Not to Recharacterize Your Roth IRA

    If you're thinking of recharacterizing your Roth IRA into a traditional IRA account, here are six compelling reasons why you should reconsider.
RELATED TERMS
  1. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
  2. Non-Qualified Distribution

    1) A distribution from a Roth IRA that occurs before the Roth ...
  3. Roth IRA

    An individual retirement plan that bears many similarities to ...
  4. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  5. Ordering Rules

    The order in which Roth IRA assets are distributed. Assets are ...
  6. First-Time Home Buyer

    An individual who is purchasing a principal residence for the ...
Hot Definitions
  1. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  2. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  4. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  5. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
  6. Security

    A financial instrument that represents an ownership position in a publicly-traded corporation (stock), a creditor relationship ...
Trading Center