Author Topic: Before retirement Roth IRA withdrawal help  (Read 674 times)

Fraxinus

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Before retirement Roth IRA withdrawal help
« on: December 15, 2018, 04:28:56 PM »
Hi all,

I've tried googling this issue, and calling Fidelity, but I'm still unsure one where I stand, & would appreciate your advice.

Background: I'm currently age 30, in the U.S., & since 26 I've been maxing out employer match 401(k) as well as independent Roth IRA contributions. I've wanted to maximize what I have in retirement for the sake of compound interest, and have kept a pretty skimpy personal savings account (roughly $10k). This past year, unforeseen circumstances (wife got a new job & new commute) instigated us to purchase a house. I had already invested in my Roth for the year. In order to make down payment, pay closing fees, & have a few dollars to put into the new house, I needed to pull out most of this year's investment in the Roth. I know this is bad. And dumb. And exactly what I shouldn't have done. BUT, beforehand, I did some internet research & talked to a rep at Fidelity, and even though I've owned the Roth less than 5 years, I was told that becausethe withdrawal was for a first-time home purchase within the current year I wouldn't be charged a tax penalty for the withdrawal.

This is where it gets murky, from my perspective: that initial home purchase (back in July) fell through after the inspection. I've been looking like crazy, but only found a home that fit our criteria in mid November. The seller countered my initial offer, and made it a non-negotiable item that closing not be until January 11th. We want the house, and so agreed to the seller's counter.

Long story short... I've made a withdrawal on a Roth IRA that I've owned for less than 5 years. And I didn't purchase a home within that calender year. Am I going to be buggered on an early withdrawal tax penalty? If so, is there anything I can do to avoid it (IRS form to fill out)? I've tried Fidelity again, and the rep I talked to said I needed to talk to a tax professional to figure out where I stand. If MMM has the same recommendation, that's what I'll do. BUT... I'm cheap. So I thought I'd post here to ask MMM advice before going that route.

Any advice is greatly appreciated!

Rob_bob

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Re: Before retirement Roth IRA withdrawal help
« Reply #1 on: December 15, 2018, 09:11:08 PM »
First, how much have you contributed to the Roth since you opened the account.  Second, did you withdraw more than that amount?

There is no 5 year waiting period for your contributions, you can take them out anytime without penalties.

As far as a first time home purchase I have read conflicting accounts.

I just read from Schwab.com that you can take out gains/earnings up to $10k for a first home purchase from an account less than 5 years old penalty free, but not tax free.

However bankrate.com and rothira.com say there will be a penalty so you will need to consult a professional who stands behind their advice to get the real answer.

At the worst you would only owe taxes and penalty on the amount you withdrew above your total contributions.

MDM

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Re: Before retirement Roth IRA withdrawal help
« Reply #2 on: December 15, 2018, 09:42:36 PM »
It's not within the current year that matters, it's purchasing the home within 120 days of the Roth distribution.

See Are Distributions Taxable? and First home.

But as Rob_bob mentioned, withdrawals of the amounts you have contributed are not taxed at all, regardless.

Probably worth your time to peruse Pub. 590b (where the above links go).