Question for the Money Doctors

Question submitted on May 9, 2010.

Question

Will I have to pay a penalty or taxes if I cash out a traditional IRA to put towards a down payment on a house?

Answer

If you or your spouse have not owned a home in the last 2 years, and you use the proceeds from your IRA to put down on your new house, the IRS allows you to exclude penalties on distributions up to $10,000.  Note - you will still owe tax on the IRA but you can avoid paying the 10% pealty on the distribution. 

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