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The IRA must have been established and funded for at least 5 years and a maximum of $10K can be withdrawn for purchasing a first home, unless you are 59.5 years old or older.
The IRA must have been established and funded for at least 5 years and a maximum of $10K can be withdrawn for purchasing a first home, unless you are 59.5 years old or older.
Oh, good point. I was stuck in my mindset of the home-buying situation.
Well, it's a bit more scary putting it in there then - but not sure if I want to risk kicking myself later for not doing so when given the chance.
The IRA must have been established and funded for at least 5 years and a maximum of $10K can be withdrawn for purchasing a first home, unless you are 59.5 years old or older.
Wait a second... Let's be clear hear.. you are talking about QUALIFIED DISTRIBUTIONS.
What we are saying is that you are able to withdraw your CONTRIBUTIONS at any time with no penalty.... This would not be a a traditional/qualified distribution.
Example:
OP contributes a total of $5000 to his Roth. The account grows to $6000. The OP can withdraw his original $5000 CONTRIBUTION with no penalties. If he withdraws the entire $6000 he will be taxed on his earnings.
Wait a second... Let's be clear hear.. you are talking about QUALIFIED DISTRIBUTIONS.
What we are saying is that you are able to withdraw your CONTRIBUTIONS at any time with no penalty.... This would not be a a traditional/qualified distribution.
Example:
OP contributes a total of $5000 to his Roth. The account grows to $6000. The OP can withdraw his original $5000 CONTRIBUTION with no penalties. If he withdraws the entire $6000 he will be taxed on his earnings.
"Distributions from Roth IRAs are tax-free until you've withdrawn all your regular contributions. After that you'll withdraw your conversion contributions, if any. When you've withdrawn all your contributions (regular and conversion), any subsequent withdrawals come from earnings. Withdrawals of earnings are tax-free if you're over age 59½ and at least five years have expired since you established your Roth IRA. Otherwise (with limited exceptions) they're taxable and potentially subject to the early withdrawal penalty."
The OP was referring to a withdrawal to purchase a (first) home. That is a special situation with its own rules --- see my previous post.
The OP was referring to a withdrawal to purchase a (first) home. That is a special situation with its own rules --- see my previous post.
No he's not:
Quote:
Originally Posted by lukyelle
I'm in the process of buying my first place. I have 10% down on a 30 year fixed rate 4.35% mortgage.
When all is said and done with closing costs, etc, I have a stash of money that I want to invest.
Do you think it would be better to use the $5000 to fully fund my RothIRA for the 2011 year or take that $5000 and put it as a prepayment on my mortgage?
Ok, so I was thinking that if I put the 5K in the Roth and then 5 months down the line wanted to take that 5K out (assuming it's still even worth that!), I could do so regardless of what the circumstances were (first home, water heater, trip to Spain).
I was under the impression that if I took out any increases over the 5k that the Roth was then worth five months from now (say $5500) - that that $500 would be penalized heavily.
But I was under the impression I could take the contributions when I wanted back, regardless of reason or length of time.
I'm 40 by the way.
But maybe I was under the wrong impression? That I can only do that for a first time home purchase? Which wouldn't do me any good because I am already buying my first home and have made the decision to NOT use the Roth for the downpayment.
But I do not believe the OP is 59. So he would be taxed and penalized on any earnings over his contribution if he withdrew before he turned 59.5
I think you are misinterpreting my response to the OP.
This is the post that my Roth IRA comments are directed to:
Quote:
Originally Posted by lukyelle
I know, I know, I hear you about having 20% down. I wish this were the case. But given everything going on with my situation here, major metro in the Northeast, huge rents that continue to rise (I pay $1000 for a 350 sq ft apt), high house prices even with the down market, and my refusal to cash out my Roth IRA for a down payment it's going to have to be 10% and make due. I have been waiting for years for the right time, I think house prices will continue to fall somewhat, how much depends on location of course. There is an astounding amount of variability on that over a very small horizontal distance in this area.
The Roth IRA is liquid - you can pull your contributions any time - penalty free.
I pointed out that there is a provision to allow a penalty free withdrawal for a first time homeowner of up to $10K.
What Does Qualified Distribution Mean? Distributions made from a RothIRA that are tax and penalty free. In order to be a qualified distribution, the following two requirements must be met.
1) It must occur at least five years after the Roth IRA owner established and funded his/her first Roth IRA.
2) At least one of the following requirements must be met:
b) Distributed assets limited to $10,000 are used towards the purchase or rebuilding of a first
home for the Roth IRA holder or a qualified family member.
The other situations which qualify are being over age 59.5, the IRA holder becomes disabled, or the IRA is distributed to an heir after the holder dies.
So the IRA was not as liquid as the OP originally thought, but there is an exception if the funds, up to $10K, are used to purchase a first home. If you have had the Roth for 5 years, you can take out money to do that even if you are not 59.5. No penalty. No tax.
And after 59.5, there is no tax on the earnings either, as long as you've had money in the Roth at least 5 years.
I'm in the process of buying my first place. I have 10% down on a 30 year fixed rate 4.35% mortgage.
When all is said and done with closing costs, etc, I have a stash of money that I want to invest.
Do you think it would be better to use the $5000 to fully fund my RothIRA for the 2011 year or take that $5000 and put it as a prepayment on my mortgage?
do you have plenty of emergency fund? if so, then Roth IRA probably.
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