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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