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

    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.
  2. Retirement

    9 Penalty-Free IRA Withdrawals

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

    Why Roth IRAs Are a Great Idea for All Generations

    A Roth IRA should be in your planning and retirement strategy whether you’re a Millennial, Generation X or Baby Boomer.
  5. 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.
  6. 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.
  7. Investing

    First-Time Homebuyer's Guide

    Buying a home for the first time can seem daunting. Learn the buying process & what to watch out for in order to be a successful first time home buyer.
  8. Retirement

    Know The Rules For Roth 401(k) Rollovers

    Rolling a Roth 401(k) into a Roth IRA is usually the optimal thing to do.
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 Conversion

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

    A tax form distributed by the Internal Revenue Service (IRS) ...
  5. Longtime Homebuyer Tax Credit

    The Longtime Homebuyer Tax Credit was a federal income tax credit ...
  6. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
Hot Definitions
  1. Debt/Equity Ratio

    Debt/Equity Ratio is debt ratio used to measure a company's financial leverage or a debt ratio used to measure an individual ...
  2. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  3. Life Insurance

    A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the ...
  4. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  5. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  6. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
Trading Center