lloydbraun wrote:I explained that I'm investing in their Intermediate Bond Index fund (.29 ER) in order to start a housing downpayment fund because of the federal government's allowances regarding the one time Roth withdrawal for housing purchases. At that point he said, "It sounds like you know what you're doing, is there anything else I can do for you?"
The one time withdrawal (regarding $10,000 for first time home purchase) refers to a Traditional IRA.
When you have a Roth IRA, you can always withdraw whatever contributions you've made, at any time, any age, and for any reason. You could contribute $5,000 for 10 years in a row, and withdraw $50,000 tax/penalty free in Year 11. As long as the earnings are left intact, there are zero tax consequences. Of course, all of this is moot if you're age 59.5 and the Roth IRA is open for 5 years.**
What concerns me is that the guy on the other end of the phone should've pointed this out, if he was actually paying attention to the course you were taking. Or, he could've just been having an off day - it is RMD/Tax season after all.
**Source: IRS Publication 590: You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s)
To clarify, the qualified first home distribution can apply to either a TIRA or a Roth IRA, but in different ways.
For a TIRA distribution, it will waive the early withdrawal penalty up to 10,000 lifetime.
For a Roth IRA, it will waive the early withdrawal penalty if you distribute conversions under 5 years. It will also allow earnings to be distributed tax free if you elect the first home option on Form 8606 and have held your Roth for at least 5 years, or allow earnings to be distributed penalty free even if you have not held your Roth for 5 years.
It's really a very complex set of rules with odd matching of tax and penalty waivers, one requiring 5 years and others not. Since you only have a 10,000 lifetime limit for all these situations combined, it takes some planning on knowing whether to trigger the first home exception or not. If you show it on Form 8606 or 5329, you have exhausted the limit you show. You won't need it if you have enough regular contributions in your Roth. I doubt you could find a phone rep at any firm that could fully explain this and in most cases, an IRA owner who could absorb it without serious study. It is by far the most complex of the IRA rules that apply to Roth IRAs. It's one of those issues that a phone rep really should recommend that the IRA owner discuss it with his/her tax advisor.