IRA Can Be used For Down Payment
June 7, 2014 | Tom Ashworth
It seems that everyone knows that if they take out funds form an IRA before they reach 59 and ½ years of age, they will have to pay a ten percent tax penalty to the IRS.
Good news is that if you are a “First Time Home Buyer” (Someone that has not owned a home in the past 2 years), The IRS allows you to withdraw up to $10,000 for singles and if you are married and your spouse has an IRA, they can also withdraw up to $10,000, for a total of up to $20,000 combined. This withdrawal has a lifetime limit and can only be used for the purchase of a home.
The withdrawal is available to people that are buying, constructing, or remodeling a first home. The first time home buyer cannot have had any past dealings with the home. Likewise your spouse cannot have any past interest or dealings with the property to be purchased.
In most cases the withdrawal will be used for a down payment, closing cost or mandatory home repairs. But it could also be used to increase a down payment so that you have more than 20% equity in your home and eliminate Mortgage insurance.
If you are a first time home buyer, you may still have to pay some taxes. Most traditional IRA contributions are made before taxes, so the taxes have to be paid when the money is withdrawn. Roth IRA’s, on the other hand are invested with after tax dollars, so no tax should be due when the first time home buyer withdraws funds.
Also, you can help children, parents, grandchildren and grandparents using your IRA to help them with the down payment.
As always, I have to say that if you consider this contact a tax professional or attorney. By telling you that, I stay out of trouble if things go wrong.
If you are a first time home buyer and want to explore your options to buy your first Texas Hill Country Home just give me a call at (208)830-7991