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Question for the Money Doctors

Question submitted on Jan 15, 2012.


I am a recent college grad with my degree in accounting. I have been working for a company for about a year and a half now and have decided to purchase my first home. I pulled $1,500 from my Simple IRA for help with my down payment and closing costs. When it came to closing I asked the seller to pay $3,000 in closing costs and I also was able to get the sellers credit for property taxes since they are paid in arrears. So I pulled the money from my simple IRA thinking I would need it for closing costs and actually didn''t end up using any of it. I know I will have to pay tax on the distributed amount but I was thinking since I bought a home I could avoid the 10% early distribution penalty. Now that I didn''t have to use any of the distribution amount at closing I am affraid I will have to pay tax and the 10% early fee. Can you shine some light on this situation for me? Will I be able to avoid paying the early distribution fee even though I didn''t use the money at closing? It is still a nice cushion to have in my bank account as buying a home comes with other unexpected expenses.

Any adise you provide will be greatly appreciated.




Section 72T describes a hardship withdrawal for first time homeowners as a distribution limited to $10,000 that is used for the acquisition cost of a first time new home.  Acquistion costs would include closing costs, financing, and other payments towards the construction or purchase of a first home.  Acquisition is the key word.  Monies used afterwards is not considered acquisition.

Is there any possibility of using the money for education or medical, which would then qualify you for an alternative hardship option?

Additionally, be certain that you have participated in your Simple plan for at least 2 years.  If you have been in the plan for less than 2 years, the penalty jumps to 25%.

Good luck.

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