I am sure I am missing something

[Openfire]

I have a retired client that pulled out his investment money from a home sale several years ago. They had been renting, and now have pulled the money out of his investment fund to purchase a home. They will owe about 20K between state and federal for this. Is there anything I am missing? Anything they can do to avoid the gain? They receive about 10K from their pension, and 33K from SS. They pulled out 77K from their IRA for the home purchase.

[Burke]

Assuming it was a traditional, deductible IRA and not a ROTH, its all taxable. Also assuming he is over 59 1/2, no penalty for IRA or 401k withdrawal.

[Jiggers]

I have a retired client that pulled out his investment money from a home sale several years ago.

What are you saying here? They sold a home in the past and invested the money somewhere? What kind of investment?

[Openfire]

Sorry! It sounded so clear in my head. He sold his home, and put the money into Pershing for a couple of years. He has now found a home, and pulled the money out of his IRA to purchase the home.

[Jiggers]

He owes the tax. Wonder why he didn't take it out of Pershing?

[Openfire]

Good question. Thank you for your responses. Both of you!

[JoshinNC]

If he sold the home and then invested the proceeds

it almost assuredly did NOT go into an IRA. Unless the proceeds were less than $5000. Sounds like your client is confused.

[bgiez]

What about the exception to the penalty on IRA withdrawals for first-time (Not owned a principal residence for at least two years) home buyers (TTB 13-3)? That would save the penalty on $10,000 of the withdrawal.

[Burke]

OP said he was retired. Assume he is already over 59 1/2.

[Openfire]

That is correct.