Qualified IRA Distributions

• You can remove IRA money whenever you want, for any reason. If you take a qualified distribution, you do not have to pay any early withdrawal penalties and do not have to rely on a penalty exception for a first-time home purchase. If your qualified distribution comes from a Roth IRA, you do not have to pay any income taxes either. A qualified distribution from a traditional IRA occurs when you are at least 59 1/2 years old. A qualified withdrawal from a Roth IRA occurs when the account is 5 years old and either you are 59 1/2 years old or you are removing up to $10,000 for a first home purchase.
  
  

Early Withdrawal Penalty Exception

• If you take it out for a first-time home purchase for your child, you can avoid the early withdrawal penalty on up to $10,000 of your distribution. The $10,000 limit applies to all first-time home buyer exceptions during your lifetime. For example, if you took out $10,000 for your first-time home purchase, you cannot take out any using the early withdrawal exception for your child. The early withdrawal exception only applies to the early withdrawal penalty on nonqualified distributions; you still have to pay the income taxes.
  
  

First-time Home Purchase

• To qualify as a first-time home buyer, your child must not have owned a home in the past two years. In addition, if your child is married, the spouse must also qualify. Your child must use the money for the home purchase within 120 days of you taking the distribution from the IRA to pay qualified acquisition costs. Qualified acquisition costs include buying the home, rebuilding the home or any typical settlement costs in purchasing the home.
  
  

Roth IRA Advantages

• If you have had your Roth IRA open for at least five tax years, your withdrawal of up to $10,000 for your child's first home purchase counts as a qualified distribution, meaning you can take out the money both tax-free and penalty-free. If your Roth IRA has not been open for at least five tax years, you can still avoid the penalty on up to $10,000, but any earnings you withdraw are subject to income taxes.