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early ira withdrawal penalty

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coronaextra

Junior Member
I live in MA and was wondering if I could avoid the 10% penalty on a ira withdrawal(my annuity) I took out in 2005 for a down payment on my house? I just received a letter(CP2000) from the irs and my accountant at the time is out of business. If it matters it was for my first house ever.
 


LdiJ

Senior Member
If it is really an IRA, first time homebuyer's can withdraw up to $10,000 for downpayment without the 10% penalty .
Absolutely, however you absolutely should have a tax pro help you respond to the CP-2000. Please don't do it by yourself.

I am a tax pro and with one my clients the IRS agent tried to disallow the exception after our CP-2000 response, and I ended up having to get the taxpayer's advocate involved. The situation was ridiculous and should not have required getting the advocate involved, but the agent wouldn't budge. (wierd, shouldn't have happened but it did)...so please don't go it alone.
 
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coronaextra

Junior Member
Thanks for the advice. Would my problem be solved by filling out and mailing a form 5329 back? That's what the rep from irs said but when I went on www.irs.gov and read the exceptions I couldn't find first time home buyers. I must add I was looking at a 2006 version of the form. Don't know if that matters. Thanks again
 

Snipes5

Senior Member
LDiJ gave you good advice.

Sure, you can send in the 5329, and one of two things will happen.

A) The IRS will be happy, and will go away and leave you alone.

B) The IRS will be confused or disagree with you, and send you another letter, asking for even more penalties and interest.

If you are already having trouble figuring out the form, it really is worth the $100 to have a professional take care of this for you.

Snipes
 

irsos

Member
Thanks for the advice. Would my problem be solved by filling out and mailing a form 5329 back? That's what the rep from irs said but when I went on www.irs.gov and read the exceptions I couldn't find first time home buyers. I must add I was looking at a 2006 version of the form. Don't know if that matters. Thanks again
You will be using Part I of the Form 5329

(1) On line one - put the amount you withdrew from your IRA

(2) On line two - put the amount of your downpayment or $10,000 - whichever is less.

(3) On line three - subtract line two from line one and put the result.

(4) On line four - Multiply line three by .10 and put the result.

Sign and date, etc. and mail to address provided.

They may ask you to send proof that used the money for a downpayment so be prepared to do that. They typically don't on a normal filing but they may since you are technically in Examination.
 

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