Question: I have a traditional IRA that I would like to liquidate.
Can someone tell me what kind of penalties I would be paying? I have abt 16k in it. What would I end up with after getting out of it?
I want to use this money to buy a house as I’ve never owned a house before. I am aware of the new Roth IRA’s…. but don’t you have to keep the money in them for 5 years before it can be used for a first time home loan??
Also….. can Roth IRA money be used on a house that is _built NEW even tho it is a first time house for me?
Answer: Well, to start, anything you take out gets taxed as regular income in the year to take it out. So you’ll pay a big chunk as taxes. On top of that, you would normally pay a 10% early withdrawal penalty.
However… You can withdraw up to $10,000 from an IRA to finance a first-time home purchase. This isn’t specific to the Roth: it also applies to the “traditional” IRA, as of this year. You still pay taxes on the money no matter what… you just get out of the 10% penalty.
So I guess, in theory, if you liquidated the whole $16,000, you would pay taxes on all $16,000 (at 28%, about $4,500 in tax), and a 10% penalty on $6,000 (so $600), so you would get $10,900 out. I don’t think the IRS cares if the house is new or used.
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