Using my Janus IRA-retirement money to put down payment on home to claim taxes?

[Big Bubba]

Hello everyone,
I have a tax question concerning taxes since the tax season will be here shortly and Christmas is a few weeks off. Anyway, I have withdrawn money from my IRA Janus retirement fund to put a down payment on an older home that will I will be doing a lease with option to purchase which me and my wife and kids love and will be purchasing it when my credit gets in better shape. Anyway, I had 10% taxes taken out from it before it was electronically placed into my checking account. I was wondering if I can claim that down payment on my tax returns when I file next year? I really and truly hope so as well as the cost to move from my home I am renting to the new home.

 

[rogerwa]

I am not a tax attorney so my advice is worth what you paid.. The 10% is a penalty for early withdrawal. I don't beleive there is anyway to write that off. If the irs is penalizing you, why would they let you write it off. You asked if you could write write off or claim your down payment. Not sure if you meant the actually down payment or the penalty. In both cases, nope..

If this a purchase of a home, with a mortgage, you can claim points, or prepaid interest, and some closing costs. I don't think you can claim moving costs either. Only if they are job related, but I have not used that provision so don' t know much.

 

[GA_Boater]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

I thought you could use a IRA or 401K withdrawal penalty free for primary dwelling purchase. Maybe you used to be able to. And rules change so much it's best to talk to a tax specialist or better yet call the IRS. They aren't that busy right now. Don't wait til the end of the year because you could get stuck paying more taxes than you should if it isn't handled just right. I'm no tax expert either so my best advice is call one but start with the free IRS.

 

[G-Daddy]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

A first time homebuyer can withdraw up to 10k from an IRA to use for first time home purchase without penalty. The withdrawal is still taxable in the year taken at the taxpayers marginal rate.

 

[skargo]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

You could have looked into a self directed IRA for this instead.

 

[bruceb58]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

First of all, you can't deduct down payments. Second of all, not only did you have to pay that 10%, but you will have to pay income tax on any gain that money in your IRA account has had.

 

[Big Bubba]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

We'll looks like taxes for me will not be looking good at all. Hopefully the US Government doesn't shaft me too badly on my own money and trying to better myself at the same time.

 

[lncoop]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

We'll looks like taxes for me will not be looking good at all. Hopefully the US Government doesn't shaft me too badly on my own money and trying to better myself at the same time.

As G-Daddy said, a one time premature distribution for a down payment on a first home is allowed and does not incur the ten percent early withdrawal penalty. In addition to the penalty the distribution is taxed as regular income, but this isn't a punitive, it's just paying your taxes. However, I'm not sure if your withdrawal qualifies as a down payment since you're leasing to own. That's a question for a true tax expert. As for Uncle Sam shafting you, I'd like to point out the following at the risk of causing your thread to be closed should the conversation become political.

Investment gains are taxed (with certain caveats of course) unless they occur in a tax advantaged account such as an IRA, 401K, etc. Since we're talking about an IRA your money has grown (hopefully) tax free. In order to remove (or at least mitigate) the temptation for us to access these funds too soon they built in the early withdrawal penalty. These kinds of retirement plans were conceived to encourage Americans to save for retirement and hopefully decrease the burden on the gubmint (tax payers) from retirees who don't have sufficient income to live on in their golden years. Once retirement age is attained distributions are taxed as regular income as they should be. So, it's not that you're getting the shaft, it's just that you're not really using your IRA as intended, hence the ten percent penalty.

I hope you don't think I'm looking down my nose or lecturing you. On the contrary, I say good for you for having an IRA. Waaaaaay too many peeps haven't made any such provisions. It just sounds like someone might have misinformed you along the way. You wouldn't be the first. Good luck with the new to you home.

 

[lncoop]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Bubba, check your PMs when you get a sec.

 

[aspeck]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

A withdrawal for a downpayment on a first time dwelling might be penalty free, but as I read the op's opening post, this is really not a down-payment. It is a lease with an option to buy. That would mean that the money would have the 10% penalty attached. Hindsight is always 20/20, but you should have contacted a CPA or other certified tax specialist, or at the very least called the IRS with your question BEFORE you withdrew the cash. Hopefully the lessons learned will not be too costly.

Good luck with the new house!

 

[Bamaman1]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Unless you're 59 1/2, withdrawals to 401K's and IRA's should simply not be done. The $ is for retirement years, and I'm sure you don't want to work until you leave this earth.

The 10% early withdrawal penalty and income tax (on the withdrawal) will essentially cost most people 40%. If it's been less than 60 days since the withdrawal, see if you can stop the deal and put the $ back where it came from--before year end. Your 4/15/12 tax liability could be otherwise costly.

You're out of luck calling the withdrawal "down payment into your first house" on a purchase rental. An alternative would be to get the owner of the house will take the $10K and carry a first mortgage on the house. (This may not be an alternative if he doesn't own it free and clear.) He cannot get any better interest income than holding a mortgage.

Banks, mortgage companies and credit unions religiously use FICO scores as a measure of one's character and capacity to pay. They're also using FICO to assess risk, and price their interest rates based on the score. Low FICO = High Interest Rates. Prompt payments of obligations and living within one's means are most important to maintaining a high quality of life.

You should consider getting on the internet and research methods of improving your FICO score. SusieOrman.com and Clarkhoward.com are good places to look. A large payment to a landlord is a bad deal. Stay out of your retirement funds, even if it means renting for awhile longer.

 

[bassman284]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

I agree with Bamaman1's opinions and find his facts to be correct (at least AFAIK). I would add this:

If, in fact, you decide to roll the money back into an IRA, you must also come up with the withholding amount out of your own pocket if you are to avoid all taxes and penalties. I'm guessing that could be painful.

You can roll the cash on hand into another IRA and avoid taxes and penalties on THAT amount, but will owe taxes and penalty on the 10% that was withheld if you are not able to make it up out of pocket. Italicized text is incorrect for reasons stated in post below.

Now, about that 10 % taxes you say was taken out. I'm trying to wrap my head around this. By law, the payor is required to take out 20% for tax withholding from an early IRA distribution. No exceptions.

Did they take only 10% out of your payout, or was it 10% in addition to the 20% they were required to take? Something isn't adding up here.

 

[cribber]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

You really should talk to a tax consultant and see what your options are with your taxes. Hit up H&R Block or Jackson Hewitt for a tax consultation. Fifty dollars worth of advice may save you thousands down the road and could go towards your filing fees if you use their services.

 

[bassman284]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Since it's been commingled (deposited into his regular checking account), he can't do a rollover. He could use the cash as new post-tax dollars going into a retirement account, but not a rollover.

Well, yes. Maybe I didn't make that clear. But I would argue that legally it would amount to a rollover.

If you Google "IRA rollover 60 day rule", you will find that you can cash out an IRA, invest in another IRA within 60 days and it is regarded as a rollover. Makes no difference where the cash was during the interim because the IRS doesn't care as long as the same amount of cash makes its way into a new IRA within 60 days. The downside of doing it that way is that, as I mentioned, the payor is required to withhold 20% of the original distribution and said 20% would have to be made up out of pocket to qualify as a rollover. (That is why I asked about the reported 10% withholding).

I made a major error in my previous post which I will correct through edit after explaining it here.

I said that if you did not make up the withholding amount out of pocket you would be subject to penalty on the withholding amount. Not true. In fact, failure to make up the withholding amount and thus not putting the FULL distribution into a new IRA would result in it NOT being considered a rollover and there would be a 10% penalty on the ENTIRE distribution plus regular income taxes.

In short, if you don't roll ALL of it, you are considered to have rolled NONE of it.

Thanks, KRS, for bringing me up short. And let this be a lesson for anyone coming to a message board for financial advice.

 

[bruceb58]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Hopefully the US Government doesn't shaft me too badly on my own money and trying to better myself at the same time.

The exact number is easily calculated by an accountant, or anyone for that matter, and should have been used for basis of a decision before taking the money out!

In my opinion its a poor choice taking an early withdrawal from an IRA to buy a house. An IRA is not a piggy bank. The OP got some bad advice somewhere.

I don't think its too late to return the money back to the IRA. Again, an accountant would know for sure.

 

[Big Bubba]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

We'll I know it was a bad idea but I didn't have any choice in the matter but to take the down payment out of my IRA. I basically got messed over from renting a house from my family and thought that I would never have any trouble but I had to find the money somewhere and I needed somewhere to live and not on the streets with having two daughters at age 8 and 13 respectively. In my opinion there should be some kind of waiver to allow for something like that when it is basically an emergency situation and have nowhere to turn but to withdrawal from my IRA account. Like I said I was in between a rock and a hard spot on this one and had no other money to pull from so the only choice which I DID NOT want to do is withdrawal the mony from my IRA account.

 

[skargo]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Is this a first time home purchase?

 

[lncoop]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Is this a first time home purchase?

Skargo, the rub is it's a rent to own situation, so in the eyes of the government it's not really a home purchase, hence the premature distribution penalty. Big Bubba may have some options, but he'll have to talk to a real expert to find out what they are, and the clock she be a tickin'.

 

[bruceb58]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Why not just rent without pulling the IRA money out? Its not like the housing prices are recovering anytime soon.

Only the first $10K is exempt from the 10% penalty. You still have to pay tax on that first $10K.

 

[skargo]

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Re: Using my Janus IRA-retirment money to put down payment on home to claim taxes?

Skargo, the rub is it's a rent to own situation, so in the eyes of the government it's not really a home purchase, hence the premature distribution penalty. Big Bubba may have some options, but he'll have to talk to a real expert to find out what they are, and the clock she be a tickin'.

I have a friend who owns a rent to own company in Baltimore, you may want to talk with them and see if they have any ideas?