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Timing of First Time Homebuyer withdrawal


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An individual is a first time homebuyer.  His IRA is in an 18 month CD that will mature in October.   He expects to close on a home approximately July 31.   He wants to take a $10K IRA distribution for the home purchase, but the CD won't mature until after the closing.  He can borrow $10K from a family member for the gap period from closing until October.

Can he still withdraw from the IRA after-the-fact and count it as a home purchase distribution exempt from the premature distribution tax?  If so, is there a time limit?  I would assume so. 

All I can find states that the purchase must occur no later than 120 after the withdrawal, but nothing I've found addresses a withdrawal after the purchase.  

thanks. 

I carry stuff uphill for others who get all the glory.

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There are no regs. Obviously, someone very literal (Justice Scalia, RIP?) could say that the money was spent not for qualified first-time homebuyer expenses, but to repay the loan. On the other hand, given the transaction as a whole, a normal person might say he used the cash for the home purchase, and they would not necessarily be inconsistent with the Code sec or Pub 590-b. It's up to the individual and his or her tax prepare to figure out what's right when he files his 1040, right?

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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Thanks @Luke Bailey, that's sort of where I'm at too.  I've read certain articles and Q&As that state unequivocally that the withdrawal cannot occur after the purchase, but that's not what the code says.   I think it comes down to whether or not the funds are used to pay "qualified acquisition costs".   If a buyer gets a swing loan that is expressly written to identify its purpose, the term coincides with when the IRA funds are available, it's pretty easy to argue that the paying it off is part of the acquisition transaction. 

Since the total distribution amount is limited to $10K, the exposure is $1,000, so it's not a huge deal either way.   

I carry stuff uphill for others who get all the glory.

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