The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: TwoJays on April 06, 2018, 11:21:22 AM
-
Hi all,
I'm currently in school and looking at converting my IRA (~13k balance) to a Roth while DW and I won't have as much income as normal. We'll likely be withdrawing the funds in 2-3 years for our downpayment on a house (to house hack - otherwise it wouldn't be worth it). In doing so, I have two questions:
1) Do I pay taxes on the entirety when I convert it or are the funds treated differently depending on whether a) I contributed it, b) it's my employer's match, or c) it is a market gain.
2) Does the penalty exemption for withdrawals for a first house purchase depend on the above "contribution" categories as well?
Many thanks!
-
You will pay taxes on the total amount of the conversion. My understanding is that when you do a conversion you have to own the Roth for 5 years before you can make a distribution. I do not know if that applies if you take money out for a home down payment though.
I'm sure others will have better details.
-
Based on 2017 Publication 590-B - p590b.pdf (https://www.irs.gov/pub/irs-pdf/p590b.pdf), you don't have to pay a penalty on up to $10K of distributions to buy, build, or rebuild a first home.