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 is fiduciary liability insurance, and what are its benefits?

    Understand what fiduciary liability insurance is, what companies or individuals can benefit from having it, and when it is ...
  2. Should I purchase a master limited partnership (MLP) in my retirement account?

    Learn why investors may have to pay taxes on dividends from master limited partnerships, or MLPs, held in individual retirement ...
  3. What are the tax implications of owning a master limited partnership (MLP)?

    Learn about the tax benefits of owning units in a master limited partnership, and understand how distributions are treated ...
  4. How should I invest the money I keep on my IRA?

    For individuals who are just starting to save, certificates of deposit can be a good place to start, but the interest rates ...
RELATED TERMS
  1. Construction Loan

    A short-term loan used to finance the building of a home or another ...
  2. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  3. Self Invested Personal Pension (SIPP)

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

    Elder care, sometimes called elderly care, refers to services ...
  5. Commercial Real Estate Loan

    definition of a commercial real estate loan
  6. Gold IRA

    Definition of Gold IRA

You May Also Like

Related Articles
  1. Professionals

    5 Signs That You Have a Lousy 401(k) ...

  2. Entrepreneurship

    Why Small Business Owners Need Financial ...

  3. Savings

    Investing: How to Make Fast Money in ...

  4. Professionals

    How the Robo-Advisors Differ (& How ...

  5. Professionals

    Target Date Funds: More Popular, Cheaper ...

Trading Center