Mortgage Info for Homes and Small Business Financing

Buy Your New Home with No Penalty Retirement Funds

Any “first time buyer” can use funds from their retirement accounts for obtaining or improving a primary residence.  And a first time buyer doesn’t have to be someone who has never owned a home.  You can do this penalty free and, in one case tax free as long you abide by a few rules of the tax code.  Here are some of the main points to understand:

1.  $10,000 can be withdrawn from an individual’s retirement account for building, buying or refurbishing your first home;
2.  You must use the money within 120 days of receipt from the retirement account;
3.  The owner or qualified relative who receives the “first time homeowner” distribution must not have owned a home in the previous 24 months (IRS definition of a first time homeowner);
4.  The primary home definition covers a home for your children or spouse’s children, your grandchildren or spouse’s, or the parents of the married couple.
5.  If both husband and wife have retirement accounts, they can withdraw up to $20,000 total ($10,000 each) without penalty.

Even though you avoid penalty on this withdrawal and the funds may not cover all your home buying expenses, you still are responsible for any income taxes due.  That’s for a regular IRA or 401k account which used pre-tax dollars to fund.

On the other hand, Dan Ring, a CPA in Edgewater, MD, near Annapolis, points out that “withdrawals from a Roth would be totally tax free in this case”.  If the withdrawal from the Roth IRA adheres to the guidelines it is then considered qualified and not subject to tax.

Click here to read the original article on how to use retirement funds for a down payment.



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