l took out some money from an IRA in 2006. l used it to purchase a home. However, the home is actually not in the United States. However, my name is on the title and some family members are living in the home currently. It is my first home. l am wondering, is this a qualified home purchase for an early withdrawal of an IRA, so that l do not have to pay the penalties? It was a Roth IRA, so in theory, l should not have to pay anything on this to the IRS.

Now the IRS is writing me telling me that l owe a bunch of money.

l hope someone can help me. All of the guidance that l found online seemed very vague as to what kind of a home purchase qualifies for the early withdrawal.

When u took out ur money in 2006, u needed to report that on ur tax return. You received a 1099R for the distribution. It was probably coded for an early distribution of a Roth IRA.

The IRS does not know how much of that distribution is the return of u contribution, or if u have an exception to the penalty. Hence, the big tax bill.

In order to figure the penalty on the distribution, or to document that no penalty applies, u need to fill out Form 5329. If u purchased a first home that was the main home of yourself, spouse, child, grandchild, parent, or other ancestor, u may escape the 10% penalty on $10,000 of the distribution.

If u did not follow the above procedure, u need to seek a professional tax preparer who can do an amendment for you.

If u do not qualify to escape the 10% penalty, then u will owe a penalty on the distribution that represents earnings of the Roth IRA. Again, Form 5329 is required to figure the correct tax.

Page 55 of the following publication explicitly defines what is a qualifying home purchase. There is no requirement that the home be in the United States.

http://irs.gov/pub/irs-pdf/p590.pdf

This was not your personal, principal residence. Therefore you owe tax and penalty.

Helen, EA in PA

First figure whether any of the distribution is taxable. Use Form 8606. If you withdrew only your regular Roth IRA contributions, there is no tax and no penalty.

Second, figure the penalty on the taxable portion. As Helen stated, the exception to the penalty applies only if the home is your principal residence.