First-Time Homebuyer Expenses. The 10-percent additional tax does not apply if the individual uses the IRA distribution for certain expenses of a first-time homebuyer. Only $10,000 during the individual's lifetime may be withdrawn without a penalty for this purpose. Qualified expenses include acquisition costs, settlement charges and closing costs. The principal residence may be for the individual or the individual's spouse, child or grandchild, or an ancestor of the individual or the individual's spouse. In order to be considered a "first-time homebuyer," the person buying the residence (and spouse, if married) must not have had an ownership interest in a principal residence during the two-year period ending on the date that the new home is acquired ( Code Sec. 72(t)(2)(F)). 165
Bill takes a hardship distribution from his 401(k) plan on April 1, 2011. In order to satisfy one of the safe harbor requirements, Bill will not be able to make any elective deferrals or after-tax contributions to the plan until October 1, 2011 (i.e., six-month suspension of contributions).