IRA Hardship Withdrawal

[crsadrjoe]

Hi guys,

This is Joe from California. Quick question about withdrawing money from a traditional IRA. I have an opportunity to buy some land in Florida, on which I plan to eventually build a home to which I'll retire. In order to do this, I need about $10k from my IRA.

I'm currently renting, an do not own any other property. I was hoping this would qualify as a "hardship" withdrawal and enable me to avoid the penalty charge. I am a first time home buyer, and this will eventually be my primary residence - not used as an income property. But I won't be moving there for another 10 years or so.

Anyone think this qualifies as a "hardship withdrawal"?

Thanks,
JoeWhat is the name of your state (only U.S. law)?

 

[tecate]

Interesting question. My guess is Section 72(t)(8)(E) means that if you don't start construction of the residence within 120 days, then you are acquiring just vacant land, not a future residence. But it is far from clear. Perhaps you can find an old case involving the pre 97 rollover rules that dealt with whether acquiring vacant land with the intent to construct = purchasing a residence.

 

[Snipes5]

You seriously think it's a "hardship" to buy a piece of land? You have to be kidding me.

Um, that would be a "no", it is not a hardship.

Snipes

 

[tecate]

Looking at this the way Snipes5 is, you can withdraw your entire IRA anytime you want, but if you don't qualify for one of the exceptions, the 10% tax will apply in addition to the income tax. "Hardship withdrawals" might be part of other types of retirement plans, but not IRA's. I thought you were looking for a way to avoid the 10% tax. Please clarify.

 

[crsadrjoe]

Yes, Tecate, that's correct. I was looking for a way to avoid paying the 10% penalty. There are certain provisions for which the penalty is waived and only the income tax charged. They're generally termed "hardships" (Snipes, call it what you want). They include: a first-time home buyer purchasing a primary residence; avoiding foreclosure; paying for college tuition; paying medical expenses; and there are a few others.

Since the purchase will be used as a primary residence eventually, and for no other purpose, and I am a first-time buyer, I thought there was a argument that could be made for avoiding the penalty.

 

[irsos]

Yes, Tecate, that's correct. I was looking for a way to avoid paying the 10% penalty. There are certain provisions for which the penalty is waived and only the income tax charged. They're generally termed "hardships" (Snipes, call it what you want). They include: a first-time home buyer purchasing a primary residence; avoiding foreclosure; paying for college tuition; paying medical expenses; and there are a few others.

Since the purchase will be used as a primary residence eventually, and for no other purpose, and I am a first-time buyer, I thought there was a argument that could be made for avoiding the penalty.

The 120 day requirement was put in for a reason. The code provides that if there is a delay or cancellation of the contract, the money can be contributed back into an IRA and avoid tax and penalty. But the idea that you can withdraw the money to buy land and wait even 120 days to begin building, muchless several years is (I am trying to think of a polite way to say this) well, (no, really I am trying) OK - insane. Why not just take it all out and make the case you intend to retire some day so you should not have to pay a penalty.