Today TaxMama hears from PA in the TaxQuips Forum with a quick question.
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“I recently completed my home construction.
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I used a loan from my credit card to consolidate other credit card purchases for material. I have a paper trail documenting the transactions.
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Can I use a withdrawal of ,000 from my IRA, penalty free to pay this credit card debt without penalty?
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”
https://taxmama.wpengine.com/forum/taxquips/irs-10k-1st-time-home-1/
Dear PA,
Believe it or not, there is a difference between using the $10,000 to pay for home improvements, and to pay off a credit card.
With the right ADVANCE planning (yes, redundant), you would have been advised to draw the money from the IRA to use to pay your home construction bills.
Then, you would not have had to use your credit cards to buy the material. You would not have had to use another credit card to consolidate your other credit card bills.
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Incidentally, three more rules that apply to this $10,000 IRA draw:
1) It’s only an exclusion from early withdrawal penalties – not from taxes.
2) It only applies to the purchase or construction of a first home.
3) It only applies to money drawn from an IRA, not any other kind of retirement plan.
https://www.irs.gov/retirement/participant/article/0,,id=211440,00.html
And remember, you can find answers to all kinds of questions about getting around the IRA penalties and other tax issues, free. Where? Where else? At www.TaxMama.com .
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