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#1
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IRA withdrawal - qualified acquisition cost question
Hi, I'm evaluating the use of my one-time $10,000 withdrawal from my
IRA for qualifed acquisition costs on a new construction property. I see that the funds need to be used within 120 days from distribution. I'll be using the money for my down payment and closing costs. My question is will I face a penalty if I buy a new construction building and it doesn't close within the 120 day period OR is the earnest money deposit count as using the money? I'm afraid that it would only count if the purchase is closed within 120 days. Anyone that has bought a place that is still being built can testify about delays! I'd hate to be slapped with a penalty when with good faith I'm trying to follow the rules! -Jim |
#2
Posted to misc.consumers.house
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IRA withdrawal - qualified acquisition cost question
"nonbuyer" writes:
Hi, I'm evaluating the use of my one-time $10,000 withdrawal from my IRA for qualifed acquisition costs on a new construction property. I see that the funds need to be used within 120 days from distribution. I'll be using the money for my down payment and closing costs. My question is will I face a penalty if I buy a new construction building and it doesn't close within the 120 day period OR is the earnest money deposit count as using the money? I'm afraid that it would only count if the purchase is closed within 120 days. Anyone that has bought a place that is still being built can testify about delays! I'd hate to be slapped with a penalty when with good faith I'm trying to follow the rules! For an authoritative answer, ask your accountantant, or perhaps a licensed financial planner. Perhaps there are some lurking here. Do you currently own any property in which you have equity? A home equity line of credit secured against it would have several advantages over the IRA loan thing. However, I'll assume you don't currently have a property because to qualify for the $10k withdrawal, you have to be a non-home-owner for at least 2 years I think. Not a bad overview article here. Based on my don't-trust-me-I'm-an-engineer read of it, it sounds like you have 120 days to put it towards a qualifying expense, and it sounds like the construction down payment would be considered a qualifying expense at hte time the payment is put down, and that the home wouldn't have to actually close withing 120 days--you just need to be rid of the money into a qualifying expense. http://www.fool.com/school/taxes/1999/taxes990521.htm And publication 590 from the IRS which says simply: "It must be used to pay qualified acquisition costs (defined later) before the close of the 120th day after the day you received it." So to a layman's reading, you withdrawal the money, you write a $10,000 check to the builder for that downpayment within 120days it sounds like you should be fine. There's no language in that publication that stipulates that the construction has to be complete and closed and occupied within 120 days of disbursement. But again, IAN an accountant, so don't take my word for it. :-) -- Todd H. http://www.toddh.net/ |
#4
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IRA withdrawal - qualified acquisition cost question
Todd, thanks for your help! I've read that foolish story, the IRS link
is very helpful, The "binding contract" language is the clicher in my eyes. -Jim |
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