How can I avoid 10% penalty on IRA funds to be used to pay off debt and buy a house.?

Question

I received the funds via transfer from my ex as part of the divorce settlement. We owned a home together so I don't qualify as a new home buyer and I am under 59 1/2. I have resigned myself to paying the taxes on withdrawal but is there any way to avoid the penalty.

Mathew · Accepted Answer

Waiting until you are 59 1/2 is the only way.

ninasgramma · Answer

You received the funds as part of a divorce settlement.  Transfers into your own IRA are tax-free.  If you can find another way to deal with your financial issues, you can still keep the IRA.

If you have received the funds and they are now outside of an IRA, you can put them back into your own IRA within 60 days and not owe any tax.

If you wait two years from the time you no longer own the previous home, you may withdraw $10K from your IRA penalty-free for the purchase of a home.  This is a one-time benefit.

Anonymous · Answer

You can't.

1.  It's not a new house, it's a property settlement.
2.  It was your choice to not keep the money *in* an IRA, so it's subject to both income tax and penalty.

A Hunch · Answer

Doubtful
Also, it's not very smart to withdraw IRA funds to pay off debts.  Creditors can't come after retirement funds, so why would you pay creditors with this money?

tro · Answer

no, it has to be a first time home buy, you already owned a home

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How can I avoid 10% penalty on IRA funds to be used to pay off debt and buy a house.?

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