If someone takes an early distribution(less than 5 years) for first home purchase isn't the growth taxable income? Example: TP takes a $3500 distribution from their Roth that has a basis of $1500 for a first time home purchase. The Roth was started in 2003. The way I understand it there would be no penalty but the $2000 would be taxable income. I'm I reading this right?
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You are correct. The earnings would be taxable.
TTB, page 13-5 shows that there are only 3 ways a distribution of earnings from a Roth can be tax free. The third one is for a qualified first time home buyer. BUT, all three are contingent on the taxpayer having a Roth IRA for at least 5 years. Without the 5 years, none of the 3 would apply.
If it is not a qualified distribution, then it is a nonqualified distribution. Nonqualified distributions of earnings are taxable. However, the 10% penalty would not apply if any of the regular exceptions to the 10% penalty apply, as listed on page 13-3. Up to $10,000 of earnings can come out penalty free to buy a principal residence, assuming the individual has not owned a principal residence for at least two years. -
Thanks
I thought I was right but I like to get a second opinion. By the way I thought you were banned from board Knees, did I miss something?Comment
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I was banned. Then I broke free. Those responsible for my banishment were forced to drop all charges against me. They have now resorted to name calling, but I’m above all that. There is little they can do when the truth is on my side.Originally posted by LawrenceGR View PostComment
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133%
I'm curious what the TP invested in that gave him a 133% return in four years.Originally posted by LawrenceGR View PostComment
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