Taxes for buyers · IRS Publication 590-BIRA withdrawal for a first home: the $10,000 exception and the 120-day clock

Someone under age 59½ who takes money out of an IRA usually owes a 10% additional tax on top of income tax. IRS Publication 590-B (for 2025 returns) makes an exception for up to $10,000 of distributions used to buy, build or rebuild a first home. The money must pay 'qualified acquisition costs' – the cost of buying, building or rebuilding the home and any usual or reasonable settlement, financing or other closing costs – before the close of the 120th day after the distribution is received, for the main home of a first-time homebuyer who is the IRA owner, the spouse, or either one's child, grandchild, parent or other ancestor. A first-time homebuyer generally had no present interest in a main home during the 2 years ending on the date of acquisition – the day a binding purchase contract is signed or building begins – and a spouse must meet the same test. The $10,000 is a lifetime limit, but each spouse who qualifies can take $10,000. If the purchase is canceled or delayed, the money can generally be put back into an IRA within 120 days of the distribution as a rollover, with no income tax or 10% tax. The exception removes only the 10% additional tax: the taxable part of a traditional IRA distribution is still income. For a Roth IRA, regular contributions come out first and aren't taxed, and a first-home distribution made after the Roth's 5-year period is a fully tax-free qualified distribution. The exception is claimed with code 09 on Form 5329 and applies to IRAs, not to 401(k) plans.