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Can We Use Our IRA to Purchase a Home?

by Jill H. Boag, CPA

If we bought a home more than two years ago and then decide to buy another home, can we withdraw money from our IRA without penalty to help pay for it under the rules for first-time home ownership?

You are referring to the 10 percent early withdrawal penalty for distributions from a qualified traditional IRA plan prior to reaching the age of 59 1/2. You can avoid this penalty if you use the withdrawal for acquisition costs, settlement charges and closing costs associated with the purchase of a principal residence as a "first-time homebuyer." But to qualify as a "first-time homebuyer," you cannot have had an ownership interest in a principal residence during the two-year period ending on the date that the new home is acquired. Therefore, since you currently own a home, you don't meet the qualifications of a "first-time homebuyer." The other limitation to this rule is that only $10,000 during an individual's lifetime qualifies for the early distribution penalty exception for qualified first-time homebuyer expenses.

Jill H. Boag is a Huntington Beach, Calif., CPA. You can reach her at (714) 964-3770 or jillhb24@yahoo.com.

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