Tax penalties for Roth IRA's

[Guest jajaboo]

My wife and I recently withdrew some money out of our Roth IRA accounts. We're going to use this money to pay part of the cost on purchasing our first home. CAn anybody enlighten me about the tax rules of withdrawing money out of an IRA account? Will my wife and I end up paying taxes on this withdrawal even though we used the money to purchase our first home?

Thanks for any feedback.

[david rigby]

You can get information in IRS publication 590, http://www.irs.gov/pub/irs-pdf/p590.pdf

or call the IRS at 1-800-tax-form.

[Appleby]

Whether you will pay tax on the amount depends on whether the Roth IRA distribution is a qualified distribution or if it is not a qualified distribution- whether the withdrawal includes earnings

You are allowed to withdraw up to $10,000 penalty-free for use towards the purchase of your first home- Your wife is also allowed $10,000 ($20,000 total for you both).

Some other points that you may find helpful

----If it has been five years since you first established a Roth IRA- the amount will be tax-free

----If the amount you withdraw is less than or equal to your total Roth IRA contributions or conversions, it will be tax-free

Only earnings are taxed- and according to the Roth IRA rules- you don’t withdraw earnings until you have withdrawn the total of all your contributions and conversion amounts.