Subject: ira early withdrawl
Date: Thu, 1 Jul 2004
Hello, I just got divorced. I would like to know if I can cash in my IRA to pay for my house, that my ex got half of. If so, what percentage do I lose and what are my tax consequences? Thank you.
Date: Fri, 2 Jul 2004
If you cash in your IRA to buy out your ex-spouse's share of the residence, the proceeds will be taxed as ordinary income and be subject to a 10% federal early distribution penalty (assuming you're not over age 59 1/2). In order to qualify for the "first-time homebuyer" exception to withdraw $10,000 penalty-free, you must not have had an ownership interest in a principal residence during the two-year period ending on the date the new home is acquired.
It's too bad you didn't ask before your property was divided. You could have allocated the IRA to your spouse tax-free and allocated the residence to yourself. Consider consulting with your attorney to see if you can take any corrective action.
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