First-time homebuyer

[Guest kingnoz]

Here is my situation.

I have a Roth IRA account that was opened 4 years ago. I am buying my first house and want to use all of my Roth IRA money for part of a downpayment. I have not made any contributions to the account over the past 3 years, and do not plan to in the future. Therefore, if I take the money out of the Roth, can I subsequently close the account and not pay the money back? Is it treated like a loan in that regard or can I just keep the money and not worry about paying it back?

Thanks for the help!!

[Guest djsnorskie]

You dont pay the money back since any withdrawal is a distribution. If the Roth has been in existence less than 5 years then all earnings are taxed and subject to penalty tax. Contributions are returned income and penalty tax free (with exception of a conversion from a regular IRA that you didnt pay the penalty tax on and you didnt survive the 5 year period). If you have held 5 years then all distributions are income and penalty tax free if qualified under the first time home buyer exception.

[JAMES PATRICK]

Actually, the earnings would have an exception to the 10% penalty because it is a first time home owner, up to $10,000. It would all be taxable however.

[BPickerCPA]

Before suggesting the earnings are taxable, one has to confirm what the poster means by "four years ago". If the IRA was opened in April, 1999, with a contribution that was attributable to 1998, then the account qualifies as over five years old and the earnings would NOT be taxable.

The key question is whether there was a 1998 contribution.

[JAMES PATRICK]

Good point.