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Question: Is there a penalty for withdrawal on profit sharing if it is for first time purchase of a home?

Suze Orman said there isn’t a penalty if you use your IRA for a first time home purchase. I have a profit sharing account & want to know if this same rule applies?

Answer: Normally you cannot withdraw anything from an employee retirement plan if it is at a current employer. IRS Publication 575 covers distributions from pensions and annuities including 401k, 403b, etc. And it does not mention any penalty exception for buying a home.

Note that if it was from a former employer and able to be transferred to an IRA, up to $10,000 could be withdrawn without penalty towards first home (see IRS Publication 590 for details). However, it does not say there would be no tax. It would be taxed as though the withdrawal was added to your income.

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Question: Can you take a loan from an IRA to purchase a home or for down payment?

Can you take a loan from your IRA or make a withdraw to purchase a home or to have a down payment? Will I pay taxes and/or penalties for early withdraw? I have heard stories about first time home buyers but the home is not my first.

Answer: 1) You can not take a loan from an IRA. That is what is called a “prohibited transaction”. The amount of the “loan” would be considered a distribution and subject to taxes/penalties.

2) Assuming that your IRA is a pre-tax traditional IRA, any withdrawal will be subject to tax.

3) There is an exception to the 10% penalty on the first $10,000 if you are a first time homebuyer. For purposes of this rule, a first time homebuyer is anyone who has not owned a home for the previous two years.

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