My Traditional IRA has been converted to a Roth IRA. Can I still make a qualified withdrawal as a first-time home buyer?

By Denise Appleby AAA
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. How do deferred tax assets help in meeting retirement goals?

    Learn how tax deferred assets can help individuals achieve long-term financial goals such as retirement and how they differ ...
  2. What are the best ways to pay less income tax?

    Learn about reducing your income tax burden by contributing to an employer-sponsored retirement plan or IRA, and see what ...
  3. What is the underwriter's job in a real estate transaction?

    Find out why the underwriter may be the most important person in your real estate transaction, and learn what information ...
  4. What are the most common deferred tax assets used by individuals?

    Use these deferred tax assets to reduce your tax liability and grow your assets simultaneously. Discover the most common ...
RELATED TERMS
  1. Elder Care

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

    definition of a commercial real estate loan
  3. Gold IRA

    Definition of Gold IRA
  4. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  5. Realtor Property Resource (RPR)

    A National Association of Realtors member benefit providing realtors ...
  6. Housing Choice Voucher Program

    The Housing Choice Voucher Program helps families with very low ...

You May Also Like

Related Articles
  1. Home & Auto

    Real Estate Face-Off: Zillow Vs. Trulia

  2. Professionals

    Why Retirement Advice Is Better But ...

  3. Professionals

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

  4. Professionals

    Ways To Cut 401(k) Expenses

  5. Professionals

    Tread Carefully With Retirement Plan ...

Trading Center