Will I incur a penalty or have a tax hit on a withdraw Roth IRA

[Brian Peterman]

Hey BP! Working on closing my first deal and I'm wondering if my thinking is correct. 

I am purchasing a 3 flat that I will be living in and this is my first home purchase. I have ~$20,000 total in my Roth IRA and I would like to withdraw all of it for use on this property. I have had it open for 3 years and have contributed $15,000 to it over those 3 years ($5,500 in 2015, $5,500 in 2016, $4,000 in 2017).

My thinking is that I am allowed to withdraw my contributions tax free, and since the gains are less that $10,000 and this will be a first time home purchase that I will also be allowed to withdraw the gains tax free. Are those assumptions true? Secondly I'm wondering if the entire sum is going to have a 10% early distribution fee or if  that isn't applicable. 

Thanks!

Brian

[Carl Fischer]

@Brian Peterman

No. Let me try again. 

1. $15k of contributions no penalty -no taxation  if that is all you distributed that would be NO tax or penalty. 

2. The remaining $5k in earnings normally would be subject to 10% penalty($500) and be added to your annual income and also taxed. Because you say you are eligible for "first time homebuyer" exemption you won't be penalized the 10% on the &5k but you will add the $5k to your annual income and pay the tax on that amount because you are not 59.5 years old. Many professionals don't know this but follow the IRS ROTH distribution form I mentioned earlier and it should be easy to follow. 

The 5 year rule does not apply to you in these circumstances. 

Summary--you will pay tax on$5k like it is extra income-that's it.