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Subject Author Date
We are being taxed for a qualified Roth IRA deduction hollyannie2001 03-23-2007
Posted by hollyannie2001 on March 23, 2007, 6:31 am
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 My husband and I purchased our first home in 2006. As part
of the down payment we used $10K out of his Roth IRA, which
was a gift to him from his uncle about 10 years ago.

Now that it is tax time, the form that my husband received
from the investment company holding his Roth IRA says that
this was not a qualified distribution. They sent the tax
form indicating that we should be penalized just as though
we took this money out to go on vacation with (or whatever).

He called today and was told summarily on the phone that
they will not issue another tax form. They say they have no
way of knowing we used the money toward a home purchase.

I suppose I could ask my mortgage broker to vouch for us?
Beyond that, I am really not sure how I would prove this
(and if it would make a difference). The distribution was
basically a check made payable to my husband, which we
deposited in our savings account from which we drew the
certified check for the entire down payment amount.

Has anyone experienced anything similar? I'm not sure what
to do and this is a difference of thousands of dollars in
our tax bill.

Thanks in advance for any advice.

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Posted by Phil Marti on March 25, 2007, 12:45 pm
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> My husband and I purchased our first home in 2006. As part
> of the down payment we used $10K out of his Roth IRA, which
> was a gift to him from his uncle about 10 years ago.

I don't know whether it makes any difference, but your
statement about the origin of the Roth can't be true. It
wouldn't be a bad idea to nail that down rather than
guessing.

> Now that it is tax time, the form that my husband received
> from the investment company holding his Roth IRA says that
> this was not a qualified distribution. They sent the tax
> form indicating that we should be penalized just as though
> we took this money out to go on vacation with (or whatever).
>
> He called today and was told summarily on the phone that
> they will not issue another tax form. They say they have no
> way of knowing we used the money toward a home purchase.

They don't. You will account for this in Part III of Form
8606 on your 2006 return. Assuming it really was a
qualified Roth distribution, the bottom line there is zero
taxable. You wind up with $10,000 on line 15a of the 1040
and zero on 15b.

--
Phil Marti
Clarksburg, MD

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Rich Carreiro on March 25, 2007, 12:45 pm
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hollyannie2001@yahoo.com writes:

> My husband and I purchased our first home in 2006. As part
> of the down payment we used $10K out of his Roth IRA, which
> was a gift to him from his uncle about 10 years ago.

How was the Roth "a gift" from his uncle? You can't
gift Roth IRAs.

> Now that it is tax time, the form that my husband received
> from the investment company holding his Roth IRA says that
> this was not a qualified distribution.

Is he over 59.5? Has he had a Roth for at five years? If
not, the custodian is correct -- it's *not* a qualified
distribution.

> They sent the tax form indicating that we should be penalized just
> as though we took this money out to go on vacation with (or
> whatever).

The custodian doesn't know what you did with the money
and it's none of their business.

> He called today and was told summarily on the phone that
> they will not issue another tax form. They say they have no
> way of knowing we used the money toward a home purchase.

Exactly correct.

> Beyond that, I am really not sure how I would prove this
> (and if it would make a difference).

You don't "prove" it to the IRA custodian, you "prove"
it to the IRS. When you fill out Form 5329 you will
say that you're not subject to the early withdrawal
penalty because of what you used the distribution for.
If the IRS ever comes calling over that (they very
likely won't), you show them the paperwork on buying
the house, the deposit record for depositing the
distribution check, and the copy of the certified check
you used for the down payment.

--
Rich Carreiro rlcarr@animato.arlington.ma.us

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Phil Marti on March 26, 2007, 11:55 am
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> Is he over 59.5? Has he had a Roth for at five years? If
> not, the custodian is correct -- it's *not* a qualified
> distribution.

Incorrect. Once the 5 year test is met, a $10,000 lifetime
distribution for first-time home purchase is a qualified
distribution regardless of age. See Pub 590.

--
Phil Marti
Clarksburg, MD

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by bono9763@yahoo.com on March 25, 2007, 12:45 pm
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hollyannie2...@yahoo.com wrote:

> My husband and I purchased our first home in 2006. As part
> of the down payment we used $10K out of his Roth IRA, which
> was a gift to him from his uncle about 10 years ago.
>
> Now that it is tax time, the form that my husband received
> from the investment company holding his Roth IRA says that
> this was not a qualified distribution. They sent the tax
> form indicating that we should be penalized just as though
> we took this money out to go on vacation with (or whatever).
>
> He called today and was told summarily on the phone that
> they will not issue another tax form. They say they have no
> way of knowing we used the money toward a home purchase.
>
> I suppose I could ask my mortgage broker to vouch for us?
> Beyond that, I am really not sure how I would prove this
> (and if it would make a difference). The distribution was
> basically a check made payable to my husband, which we
> deposited in our savings account from which we drew the
> certified check for the entire down payment amount.
>
> Has anyone experienced anything similar? I'm not sure what
> to do and this is a difference of thousands of dollars in
> our tax bill.

Of course the investment company doesn't know what you did
with the money. You have to tell the IRS yourself what you
did with it. You report this on Form 8606. Your tax preparer
should have known this, or if you are doing your own taxes,
maybe you need some help or a better program.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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