WHAT IS 'Qualified Acquisition Cost'

Qualified acquisition cost includes items, in the context of Individual Retirement Account, IRA, withdrawals, that constitute penalty free withdrawals for an IRA owner who uses the assets to purchase a first home.

BREAKING DOWN 'Qualified Acquisition Cost'

Qualified acquisition cost includes: costs of buying, building, or rebuilding a home or any usual or reasonable settlement, financing, or other closing costs. An individual retirement account is an investing tool individuals use to earn and earmark funds for retirement savings. IRAs can consist of a range of financial products such as stocks, bonds or mutual funds.

Types of retirement accounts

Payroll Deduction  IRA: Even if an employer does not want to adopt a retirement plan, it can allow its employees to contribute to an IRA through payroll deductions, providing a simple and direct way for eligible employees to save.

Salary Reduction Simplified Employee Pension, SARSEP: This is a SEP set up before 1997 that includes a salary reduction arrangement. Instead of establishing a separate retirement plan, in a SARSEP, employers make contributions to their own IRA and the IRAs of their employees, subject to certain percentages of pay and dollar limits.

Simplified Employee Pension, SEP: They provide a simplified method for employers to make contributions to a retirement plan for their employees. Instead of establishing a profit-sharing or money purchase plan with a trust, employers can adopt a SEP agreement and make contributions directly to an individual retirement account or an individual retirement annuity established for each eligible employee.

SIMPLE IRA plan:  These are tax-favored retirement plans that small employers, including self-employed individuals, can set up for the benefit of their employees, a SIMPLE IRA plan is a written salary reduction agreement between employee and employer that allows the employee, if eligible, to choose to have the employer contribute the salary reductions to a SIMPLE IRA on the employee's behalf.

401k Plan: This defined contribution plan allows employee salary deferrals and/or employer contributions.

SIMPLE 401k Plan: This defined contribution plan is available to small business owners with 100 or fewer employees.  An employee can elect to defer some compensation.  

403b Tax-Sheltered Annuity Plan: These are annuity plans for certain public schools, colleges, universities, churches, public hospitals, and charitable entities deemed tax-exempt under Internal Revenue Code section 501c3.

Profit-Sharing Plan: This defined contribution plan allows discretionary annual employer contributions.

Money-Purchase Plan: In this defined contribution plan, employer contributions are fixed.

Defined-Benefit Plan: This is plan is funded primarily by the employer for which the contributions are actuarially determined.

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