Monday, August 17, 2009

First Time Home Buyer; Got the FICO, need the 3-4% Down. I might know where you can find it tax free!

With all of the talk about the $8,000 tax credit for first time home buyers, the fact that there is potentially “more” tax free money that can be used toward the purchase of a first time home, might be escaping us. The Roth IRA. Yep. According to the IRS’ website, “You do not include in your gross income qualified distributions from your Roth IRA. You may have to include part of other distributions from Roth IRA(s) in your income.” Okay this we know.

The site goes on to say, “A qualified distribution is generally, any payment or distribution made after the 5–taxable–year period beginning with the first year for which a contribution was made to a Roth IRA set up for you, and that is made on or after you reach age 59 1/2, made because you are disabled, made to a beneficiary or to your estate after your death, or that is made to buy, build, or rebuild a first home. A distribution used to buy, build or rebuild a first home must be used to pay qualified costs for the main home of a first time home buyer who is either yourself, your spouse, or you or your spouse’s child, grandchild, parent, or other ancestor.” As my twenty-something year old niece would say, “hey HEY hey. “

The IRS rules allow that up to $10,000 in “earnings” can be withdrawn after the 5 year period. This means that if you have an ROTH and it was first funded six (6) years ago this year, you are probably in business. Now, should you use these dollars toward a purchase your new home? Good question. I could definitely make the case that with affordability at 50 year lows that it makes sense. If you have the money in some fixed investment or the stock market it might make better sense. If “not” using your ROTH would prohibit you from buying your first home and taking advantage of the $8,000 tax credit which would essentially increase dollar for dollar (up to $8,000) your ROI (return on investment) in your new home, then yes I would have to say it is an absolute must to “raid your ROTH.”

Also, and don’t miss this point, the IRS says “used to pay qualified costs for the main home of a first time home buyer who is either yourself, your spouse, or you or your spouse’s child, grandchild.” This means that if Mom or Dad want to help you get into that first home, they can tax-free. That means Grandma or Grandpa can do the same.

Now you don’t have to use a ROTH to help you out, but consider that tax laws change like the wind. You can’t count on what they might be a year from now much less 10, 20, or 30 years down the road. You can take advantage of what we know today however to make your first biggest investment of your life!

These are probably the best buying conditions in 30 years! If you would like to search the Athens MLS please take a look at listings in our “Classic City” today! On this web MLS search solution you can search every listing on the Georgia MLS for the Greater Athens area or in your Georgia town!

1 comment:

  1. Good thing you have done here, Thanks! This is a pretty up beat post about real estate that I am quoted in.

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