Traditional IRA

Archive for the ‘Traditional IRA Distributions’ Category

What does the IRA distribution for first time home buying has to be used for?

IRA Distribution of IRA funds under the First Time Home Buyer provisions must be used to pay “qualified acquisition costs” before the close of the 120th day after the day the distribution was received. 

What are qualified acquisition costs?

Qualified acquisition costs include the costs of home buying, building a home and any usual or reasonable settlement, financing, or other closing costs. The IRA distributions cannot be used for other home-related expenses such as for furnishings or general home repairs or maintenance. 

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Does this IRA distribution exception apply to other types of retirement accounts?

No. 

The penalty-free rules apply only to IRA accounts (Traditional IRA, Roth IRA, SEP IRA, and other IRA accounts), and not to 401k, 403b or other qualified pension plans. 

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How is the First Time Home Buyer early IRA distribution exception reported to the IRS?

First time home buyers complete Form 5329 (Additional Taxes on Qualified Plans-including IRAs) and insert code ‘9′ on line 2. Form 5329 is then filed with the you Form 1040. 

Note: The 10% early IRA distribution penalty will not apply because the IRS will see code ‘9′ on Form 5329. You should keep records of how the IRA distribution was used in case of audit.