SEPP plus First Home
L1: SEPP plus First HomeI’m building a home, have plenty of $’s in my IRA and previous job 401(k). It looks like I can take $10k out penalty free to build this home. Questions…
1. How can I take out the $10k plus start a SEPP? I’ll be 49 this year.
2. My wife started SEPP last year. Can she take the $10k out in addition to help build this first home.
2015-02-05 21:14, By: kimbonics, IP: [18.104.22.168]
L2: SEPP plus First HomeYoucan distribute from an IRA (not 401k) up to 10k without penalty. You can do that before you start your SEPP and neither the 10k or the SEPP distributionswill be subject to the penalty. You would claim the penalty exceptions on a 5329 using code 12 since you would have two different exceptions. You will probably have to roll your old 401k over into an IRA and partition your IRAs by direct trustee transfer into two IRA accounts. One would be large enough to generate the SEPP distribution you need and the other would be for your 10k distribution and for emergency needs after that. Having a separate smaller IRA from the SEPP could therefore insure against having to bust your SEPP if you needed extra money. Your SEPP will have to cover 10 years of inflation.
However, your wife cannot take a separate 10k out of her IRA since she already started her SEPP plan. If she had another IRA that was not part of her SEPP she could take a 10kdistribution from the other IRA penalty free.2015-02-05 21:43, By: Alan S, IP: [22.214.171.124]
L3: SEPP plus First HomeThere seems to be some ambiguity between what a first time “rebuild” is. It seems you could get the $10k if you rebuild your home for the first time even if you’ve been in the home for 15 years. That’s actually what I want to do. The wording of the rule seems to say that I can take the $10k out, as long as it’s within 120 days of closing on the contract.
The defintion of “first time” has an “or” between, 1. first home not having had a home in over two years. “or” 2. Within 120 days of a major remodel/rebuild.
So, question. Is it still a qualifying withdrawal if I basically tearing my home down and building a new one right where I live?2015-02-06 00:29, By: kimbonics, IP: [126.96.36.199]
L4: SEPP plus First HomeTo meet the definition of a first time homebuyer, you cannot have an interest in a main residence for the 2 year period before you purchase or construction of a new residence. That means you would need at least 2 year between the time the old house was demolished and the start of construction for the new residence. Re building on the same lot should not be an issue.
If your IRA is large enough, just establish your SEPP to pay out 10k more than you otherwise planned. You can then use 10k for each year of the first two or three years on the house or to pay back a loan. After 3 years has passed you will probably need the 10k due to the effect of inflation on your living expenses.
2015-02-06 03:42, By: Alan S, IP: [188.8.131.52]
L5: SEPP plus First HomeBut look at the language. There’s an “or” for re-building in determining the “date of acquisition”
from:IRS Publication 590
Page 58, bottom right section….
Generally, you are a first-time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild. If you are married, your spouse must also meet this no-ownership requirement.
Date of acquisition.
The date of acquisition is the date that: You enter into a binding contract to buy the main home for which the distribution is being used,or
The building or rebuilding of the main home for which the distribution is being used begins.
I’d like to the the $10k for this reason, then wait a year to determine if I really want to start SEPP. Better yet, take the $10k from one account, and also start SEPP on a second account this year, getting more like $10k + $8k2015-02-06 14:00, By: kimbonics, IP: [184.108.40.206]
L6: SEPP plus First HomeIf you are re building the home the acquisition date IS the date you break ground on the new home. But you still cannot have an interest in a main home in the 2 year period prior to that date. You owned the prior home, so you would have an interest in it until it is demolished. Therefore, whenever you demolish the existing home, 2 years must then pass before you break ground on the replacement or you do not qualify as a first time homebuyer under the definition.
Therefore, the problem in qualifying is not the date of acquisition, it is the two year period of non ownership that must precede the date of acquisition. Essentially, defining the acquisition date as when the new construction begins rather than when the house is complete results in the 2 year period pushing farther back in time.
2015-02-06 16:36, By: Alan S, IP: [220.127.116.11]