Utilizing an IRA Withdrawal for a Qualified Home Purchase

Buying a home is a significant financial commitment, often leaving potential buyers feeling financially constrained. If you find yourself in this situation, you might consider withdrawing funds from your traditional IRA to help finance the purchase. However, this decision requires careful consideration. Typically, withdrawals from an IRA before age 59 1/2 are subject to a 10% penalty. Fortunately, there is an exception to this penalty for specific home purchases, with a lifetime withdrawal limit of $10,000.

To qualify, the purchase must be for an eligible “first-time” principal residence, which can be for yourself, your spouse, your child, your spouse’s child, your grandchild, or your parent or other ancestor. Additionally, neither you nor your spouse, if applicable, can have owned a principal residence within the two-year period preceding the acquisition date. The acquisition date is defined as the date you enter a binding contract to purchase the home or the date construction or rebuilding begins.

Timing is essential when using IRA funds for a home purchase. The withdrawn funds must be used to cover qualified acquisition costs within 120 days of the withdrawal. These qualified costs include expenses related to purchasing, building, or rebuilding a home, as well as any customary or reasonable settlement, financing, or other closing costs.

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