Author Topic: First Time Home Buyer / Tax Deferment Question  (Read 157 times)

Righty

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First Time Home Buyer / Tax Deferment Question
« on: February 05, 2018, 11:07:44 AM »
Hello - quick question I wanted to run by the forum - I think it makes sense but just wanted another set of eyes. This is a high-level, conceptual question - I'm sure more detail would be helpful for some but not needed for what i'm asking (e.g. does this make sense?)

For 2017 we will need to pay around $2800 in taxes (another story - my wife didn't fill out her w4 correctly).

We are planning to buy a home in 2018 and have been saving funds for down payment/closing costs (~70K at Ally).

We did not make any contributions to IRAs yet in 2017 (another story for another day as well).

I was thinking it would make sense for my wife and I each max out our IRAs for 2017 (whether we can is TBD), which would reduce our 2017 tax liability to a much smaller number.

Then in 2018 when we purchase our house, remove the $5.5K penalty free from each account as a first-time home buyer.

So income taxes will be due on the money eventually (in 2018), but given there will be lots of tax deductions (even with the new law) involving the purchase of a house, these taxes would be reduced as well.

Does this approach seem feasible? (Seems like an obvious no-brainier to me, but perhaps i'm missing something)

Thanks!

HawkeyeNFO

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Re: First Time Home Buyer / Tax Deferment Question
« Reply #1 on: February 05, 2018, 11:13:57 AM »
Your case will work.  But, instead would put the money in the IRA, then forget about it until a few years from now, if you can afford to do so.

If you are buying the house this year, your best bet is probably a high interest savings account.  Check Doctor of Credit's website for the best ones available today.  Putting it in an IRA usually means mutual funds, which have become more volatile lately.  You need to keep that money fairly liquid and not put the short-term needed money at risk.
« Last Edit: February 05, 2018, 11:24:58 AM by HawkeyeNFO »

Gin1984

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Re: First Time Home Buyer / Tax Deferment Question
« Reply #2 on: February 05, 2018, 11:18:58 AM »
No, this doesn't work.  Only money you can withdraw without penalty is a contribution to a ROTH.  And you have to pay taxes on that. 

If you are buying the house this year, your best bet is probably a high interest savings account.  Check Doctor of Credit's website for the best ones available today.  You need to keep that money fairly liquid and not complicate things.
Hawkeye, you would be incorrect.  Up to $10,000 can be removed from a traditional IRA for a first time home buyer without penalty.

HawkeyeNFO

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Re: First Time Home Buyer / Tax Deferment Question
« Reply #3 on: February 05, 2018, 11:20:58 AM »
You are correct, and I amended my post.