A:

You and your spouse each qualify for a penalty-free distribution of up to $10,000 for the purchase, acquisition or construction of your principal residence or first home. By IRS standards, you are a first-time homebuyer if you did not own an interest in a principal residence during the two years prior to the purchase of a new home. Further, because it has been five years since you established your first Roth IRA, and the distributions will be used towards the purchase, acquisition or construction of your principal residence or first home, the distribution meets the requirements of a "qualified distribution" and will be tax- and penalty-free.

For more information, see the section on distributions in our Roth IRA Tutorial.

This question was answered by Denise Appleby
(
Contact Denise)

RELATED FAQS
  1. My Traditional IRA has been converted to a Roth IRA. Can I still make a qualified ...

    If you converted the funds less than five-years ago, you will not be able to meet the qualified distribution requirements. ... Read Answer >>
Related Articles
  1. Retirement

    9 Penalty-Free IRA Withdrawals

    If you need to take early distributions, find out which exemptions allow you to avoid expensive consequences.
  2. 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.
  3. Retirement

    Tax Treatment Of Roth IRA Distributions

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

    The Best Bet for Taxes: Traditional or Roth IRAs?

    Choosing a Traditional IRA over a Roth IRA, or vice versa, depends on financial situation and long-term goals, especially if you want to trade.
  5. Retirement

    Roth 401(k) Vs. Roth IRA: Which One Is Better?

    It all depends on your age, your income - and your plans for your retirement nest egg.
  6. Taxes

    The Truth About The First-Time Homebuyer Tax Credit

    The $8,000 tax credit might be the push you need to buy your first house, but there are some things you need to know first.
  7. Retirement

    Don't Make These Top 10 Mistakes On Your Roth IRA

    Don't lose out on the benefits of a Roth by contributing too much, breaking rollover rules or making other avoidable errors.
  8. Retirement

    Tips On How To Use IRAs To Boost Retirement Savings

    According to the Trustees of the Social Security Fund, the fund will be depleted by 2037. Are you ready?
  9. Investing

    IRAs vs. 401(k)s: Differences Between Roth and Traditional

    For each type of account, whether IRA or 401(k), you also need to decide whether you need a Roth or traditional version. Your tax status and other issues will determine which of these are open ...
RELATED TERMS
  1. First-Time Home Buyer

    An individual who is purchasing a principal residence for the ...
  2. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
  3. Roth IRA

    A Roth IRA is an individual retirement plan that bears many similarities ...
  4. Non-Qualified Distribution

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

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  6. Form 5405: First-Time Homebuyer Credit And Repayment Of The Credit

    A tax form distributed by the Internal Revenue Service (IRS) ...
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  3. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  4. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  5. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
  6. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
Trading Center