I opened a Roth IRA about 3 years ago and am contemplating taking a few thousand out of it to help put the downpayment down on my first home. I’m getting a little confused with all that I’m reading online, so I thought I would turn here (before asking my accountant). So, can I proceed with this? And if so, what steps do I need to take? Thanks.
Where did the money come from to start the Roth? Was it a conversion from another retirement account, or a contribution of cash?
Another question is how much you are withdrawing or have already withdrawn, relative to how much you have originally put in.
Not to appear snarky or anything, but why ask a bunch of random strangers rather than your accountant?
Who’s going to know your personal financial situation better? Or what steps you need to take?
This. I had to go back over my account for all the years I’d had it, to figure out this amount. It was messy as hell, given that accounts had shifted, split, and merged. I went to a tax preparer, and it took over five hours (spread over three days.) Only once they’d found out all my contributions could they begin to figure the tax liability.
They gave me a summary of their calculations, in a big envelope prominently labelled “Keep Forever!”
(Obligatory rant against over-complicated tax systems…)
Has the account increased in value since you contributed? I believe that tax/penalties only apply to earnings. If correct and if your account hasn’t grown then that may be all that you need to know.
Up to $10,000 can be taken out of an IRA to help purchase a first home without triggering the 10% early withdrawal penalty, so you should be fine on that. When it comes time to file your taxes, you will need to file Form 5329 with the return and indicate that exception to the penalty.
As to any taxes you may owe on any earnings in the account, the IRS has ordering rules for these occurences. Money taken out is deemed to have come from your contributions first and from earnings last. Therefore, if you take out say $3000 and you know you have contributed at least that much since you started the account, you will be fine.
If the account was converted to a Roth from another type of retirement account, let us know since that could complicate things a little bit.