Question

What is the maximum amount of a Roth IRA early distribution (a withdrawal of earnings) that is not penalized if used to purchase a new home as a first-time buyer? Assume the taxpayer has held the Roth IRA for seven years and is under 45 years old.

a) $2,500

b) $5,000

c) $6,000

d) $10,000

Answer 1

"Earnings" is the difference between the money in withdrawal that exceeds the value of original contribution and is subject to tax and penalties. The penalty amount for early withdrawal of earnings is 10% of earnings withdrew.

If one needs cash to cover closing cost on first home we can withdraw from earning from ROTH IRA of around $10000. To withdraw earnings from ROTH IRA one has to follow some rules. First is that withdrawl will be given to those whose account opened is more than 5 years. Account holder satisfy desired given time duration then IRS gives you a gift which is that account holder qualify for both income tax and penalty free withdraw of $10,000 which account holder has to spent within desired duration that is 120 days of withdrawl.

So, the answer is (d) $10,000.