Can I, without tax penalties, use the IRA I inherited from my father to buy a home that I will live in? He was 72 and had started taking small payouts on it.
If you inherited an IRA from someone who was not your spouse at the time he/she died, the amounts that you receive as a distribution from the IRA will never be subject to any early-distribution penalties. However, amounts you receive will be treated as ordinary income (for you) and may be subject to income tax. The exception regarding distributions used to purchase a first-time home only applies to those IRAs you established and contributed to yourself, not those you inherited. (For more details on the exception for the first-time home purchase, see the "Distributions" section of our IRA tutorial.)
Caution: Because your father died after age 70 ½ and started distributions, you are required each year to distribute a minimum amount from the IRA you inherited from him. This amount is referred to as a required minimum distribution and is calculated using your age, beginning the year after the year your father died. Your IRA custodian should be able to assist you with this calculation. If you fail to distribute at least the minimum amount each year, you could owe the IRS 50% of the amount you failed to distribute.
Note: The rules vary for spouse beneficiaries.
This question was answered by Denise Appleby