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I wan't to take out $20k from Roth IRA without 10% penalty…

Customer Question
I wan't to take...

I wan't to take out $20k from Roth IRA without 10% penalty Bought first house last October.

Accountant's Assistant: The Expert will know how to help. Please tell me more, so we can help you best.

Since then I've been doing extensive renovations. Certificate of Occupancy next week. Can I take the money now without penalty. IRS allows for 'Rebuilding' but don't know how that is defined. It is our first house

Accountant's Assistant: Is there anything else important you think the Expert should know?

First mortgage last October, but then was quickly refinanced for a construction to permanent loan to do gut renovation/improvement. I'm under 59.

Submitted: 7 months ago.Category: Tax
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9/27/2017
Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,637
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
Verified

Hello. Thank you for choosing this Q&A service for assistance. My name is Angela. I will be assisting you.

You may withdraw the exact amount of your Roth IRA contributions with no penalties.

REFERENCE SOURCE:

http://www.rothira.com/roth-ira-withdrawal-rules

I am aware of the first time home buyer exception, but not an exception relating to rebuilding or renovating the first home. I will check into that and get back to your shortly. If you need to withdraw more than the amount that you have contributed, then you will have to pay the 10% early withdrawal penalty.

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Customer reply replied 7 months ago
It's all basis as it was rolled over from a 401K recently and never re-invested. Please confirm I can take this all out without penalty. Thanks,
Customer reply replied 7 months ago
No call needed. Final question.
Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago

Hello again,

Sorry for the delay. I'm checking into this. I will get back to you shortly. Thank you for your patience.

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Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago

Were the funds rolled over from a Roth 401k? If so, see below:

----------------------------

From Roth 401(k) to IRA

If the rollover is to a Roth IRA instead, the holding period within the Roth 401(k) does not carry over. That is, if the client has an existing Roth IRA, once the Roth 401(k) distribution is in the account, it has the same holding period as the Roth IRA funds. Let's assume, for example, that the Roth IRA was opened in 2000. You worked at your employer from 2006-2009 and were then let go or quit. Because the Roth IRA that you are rolling the funds into has been in existence for more than five years, the full distribution rolled into the Roth IRA meets the five-year rule for qualified distributions. On the other hand, if you did not have an existing Roth IRA and had to establish one for purposes of the rollover, the five-year period begins the year the Roth IRA was opened, regardless of how long you have been contributing to the Roth 401(k).

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Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago

Sorry for the delay. Based on the following information, it does not appear that you will be able to withdraw the funds without incurring the penalty. SEE BELOW:

--------------------------

Unlike the 5-year rule for contributions, in the case of conversions, each conversion amount has its own 5-year time period (Treasury Regulation 1.408A-6, Q&A-5(c)), and thus with multiple conversions there may be multiple different 5-year periods underway at once. When withdrawals occur from conversion amounts, they are deemed to be withdrawal on a first-in, first-out basis under IRC Section 408A(d)(4)(B)(ii)(II), which effectively means the oldest conversions (most likely to have finished their 5-year requirement) are withdrawn first, and the most recent conversions are withdrawn last. (Overall, the ordering rules from Roth IRAs stipulate that withdrawals are after-tax contributions first, conversions second, and earnings third.)

REFERENCE SOURCE:

https://www.kitces.com/blog/understanding-the-two-5-year-rules-for-roth-ira-contributions-and-conversions/

Let me know if you require further assistance with this matter. If not, I ask that you be so kind as to scroll to the top of the page and select 3 or more stars to positively rate my response so that I can receive credit for assisting you.

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