First Time Home Buyers Tax Tips
The House of Representatives added an exception to the tax law 72(t) penalty, which changed to allow qualified first-time home buyers to withdraw up to $10,000 from their IRA without being penalized.
The key take- away here is that taxpayers can only make an early withdrawal (before age 59 ½) from an IRA up to $10,000 to use towards their first- time home with incurring a 10% tax penalty.
This specification was later clarified in the 2015 court case: Lily Hilda Soltani-Amadi and Bahman Justin Amadi v. Commissioner. To assist in paying for their new home, Ms. Amadi made an early withdrawal from her 401(k) plan. The court determined that had they withdrawn from an IRA they would have been penalty free. However, an early withdrawal from a 401(k) requires a 10% penalty. Judge Armen summarized the issue by stating, “Congress chose to grant relief… for distributions from IRAs but not for distributions from other qualified plans, such as a section 401(k) retirement plan.”
In short, if you decide that it is in your best interest to withdraw money from your retirement plan to help pay for your first home – ensure that you are withdrawing from an IRA; the no 10% penalty relief granted by Congress, does not extend to any other retirement plan.
The above information is of a general nature only and should not be relied upon for specific situations. Click here for additional tax services information.
Call Marlies Y Hendricks CPA PLLC at either 716-694-3500 or 910-769-8730.