As we mentioned last Friday, there are two positive ways you can withdraw funds from an IRA without the 10% penalty. The first is for eligible educational expenses, the second, which we will discuss now, is for the purchase of your first home.
The government has always been a friend of the prospective homeowner (private mortgage insurance, property tax, and mortgage interest are income tax deductible) and this benefit has been around for a while. The regarding the withdrawal of funds from an IRA is that you can use up to $10,000 in IRA funds, $20k if you’re married but must be $10k per IRA and your spouse must be a first time homebuyer too, towards the purchase of a home.
Definition of a First Time Homebuyer
As long as you haven’t owned a principal residence anytime in the last two years, you count. If you have but your spouse, child, grandchild or parent hasn’t been then you can give them the $10k from your fund!
120 Day Time Limit
Another gotcha to watch out for is that you have to use the IRA money towards “qualified acquisition costs” within 120 days. A qualified acquisition cost includes buying, building or rebuilding, settlement, financing, or other closing costs.
Whether or not it is a smart move to raid your retirement fund is a different question.