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Do I need to repay the 10k loan from my IRA tha I will use to purchase a home as a first time home owner?

Jan 30, 2012 by Edwin from Fresh Meadows, NY in  |  Flag
2 Answers  |  6 Followers
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3 votes

Edwin,

If you used IRA money to help make a down payment on a home and it qualifies as a first home you are either buying, building, or rebuilding (see publication 590 and talk with your tax advisor), it is considered a distribution from the IRA and taxed as income in the year of distribution. It qualifies for special tax treatment in that monies taken out of the IRA will not be assessed a 10% penalty if you are under age 59 and 1/2. It is not a loan. However, it may be possible to pay back part or all of the monies if it is done within 60 days of taking that money out of the IRA via a 60 day rollover. Any portion of the money that is paid back into the IRA via the 60 day rollover provision would then not be considered a distribution and therefore would not be taxed.

2 Comments   |  Flag   |  Jan 30, 2012 from Lowell, MI
Edwin

As you stated it's not a loan . Then what is the benefit if you need to repay it back within 60days? If I do not repay back 10K then i would be subject to the 20% early withdrawal plus the 10% tax?.

Flag |  Jan 31, 2012 near Fresh Meadows, NY
Russ Blahetka, DBA, CFP®

Hi Edwin, As Craig mentioned, if you qualify as a first time home owner, the advantage is you can remove the $10K and only pay income tax without the 10% federal and potential state penalties. It's one of the few ways the governemnt allows you to tap your retirement funds without penalty. You do not need to pay it back in 60 days. If you do replace the money within 60 days, then you do not owe taxes. However, if you do not replace the money in 60 days, then you need to pay taxes on the amount you withdrew. I hope this helps.

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Flag |  Mar 10, 2012 near Permanente, CA

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2 votes

Edwin, If you choose to not pay back the IRA within 60 days, then the money taken out of the IRA would be considered a distribution and taxed as income in the year of distribution. If you qualify for as a first time home buyer (again, you should confirm this with CPA or tax accountant), then you would not be hit with a 10% penalty for early withdrawal if you are under the age of 59 and 1/2. What is the advantage? Maybe the downpayment from the IRA is enough to eliminate PMI on your loan. Maybe the reduction in the monthly payment of the loan from the downpayment is enough to justify the withdrawal. What is the disadvantage? It is possible that the IRA withdrawal when added to your other earned income puts you in a higher tax bracket.. so be careful. There is also an opportunity cost since the money taken out of the IRA would no longer be invested. I hope this helps you out.

View all 4 Comments   |  Flag   |  Jan 31, 2012 from Lowell, MI
nora

I am Nora Holley from Washington if you need loan then contact Standard Loan Firm cos that is where I got my loan four days ago without credit check and low interest rate of 3% without cosigner. You can contact them with this email standardloanfirm@live.com

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Flag |  Nov 12, 2012 near Washington, DC
Edwin

@Nora Holley is there a phone number and a contact name.

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Flag |  Nov 12, 2012 near Fresh Meadows, NY

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