Purchasing a home is an expensive proposition that leaves many would-be buyers feeling cash-strapped. If that’s you, you might be thinking about taking some money out of your traditional IRA to help fund the purchase. But should you? After all, a 10% penalty normally applies to IRA withdrawals before age 59 1/2. The good news is that there’s an exception to the penalty for certain home purchases, subject to a lifetime limit of $10,000.
To qualify, you must be purchasing an eligible “first-time” principal residence for yourself, your spouse, your child, your spouse’s child, your grandchild, or your parent or other ancestor. In addition, neither you nor your spouse, if applicable, can have owned a principal residence within the two-year period that ends on the acquisition date. The acquisition date is the date you enter a binding contract to buy the home or the date the building or rebuilding begins.
Timing is critical. The funds must be spent to pay qualified acquisition costs within 120 days of the day you receive the withdrawal. Qualified acquisition costs include the costs of buying, building, or rebuilding a home, plus any usual or reasonable settlement, financing, or other closing costs. We are always happy to help. Contact our office with questions.