First Time Home Buyer

What is the traditional IRA distribution and Roth IRA distribution exception for a first time home buyer?

Individuals may take IRA distributions from their traditional IRA or Roth IRA accounts to pay up to $10,000 of first time home buyer expenses without incurring a 10% penalty.

(The 10% penalty would otherwise be applicable if an individual is under 59 1/2 and no other IRA distribution exception applies.)

However, even though the 10% penalty is waived, income taxes are still required to be paid. The $10,000 limit is a lifetime limit (not a per purchase limit) for first time home buyers.

What is the definition of first time home buyer for traditional IRA and Roth IRA distribution purposes?

The definition of first time home is somewhat misleading. A first time home buyer is defined as

    "someone who has not owned a principal residence for two years" prior to buying the home for which he or she wants to take the $10,000 Traditional IRA or Roth IRA distribution.

Example: first time home buyer IRA distribution exception 

Mr. IRA distribution seeker purchased a home 10 years ago and sold the home after 8 years and has been renting for the last two years. Mr. IRA distribution seeker would qualify for the penalty free IRA withdrawal under the first time home buyer provisions, assuming the $10,000 IRA withdrawal was not used on any previous first time home purchase.

A first time home buyer can be the taxpayer, spouse, any of their children, grandchildren or ancestors.

A husband and wife with separate IRA accounts can each withdraw up to $10,000 from their separate IRA accounts, or a total of $20,000, if they qualify.

Therefore parents or even grandparents would be entitled to withdraw $20,000 ($10,000 from each spouse's IRA) on behalf on their child's or grandchild's first time home buying.