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I'm in the process of purchasing a home and I need to put 5% of the value down to be held in escrow until the deal closes. This money can then either be refunded back to myself or be rolled into the down-payment. I know that as a first time home buyer I can withdraw $10,000 without the 10% penalty, but the money has to be used within 180 days. In the event that the deal takes longer than expected (around 55 days from date of offer acceptance) or the deal falls through, how does the IRS treat the $10,000 that is still outstanding? Would it have to be immediately redeposited or could it be held in escrow until another deal goes through?

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    If you need to take money from the IRA for the escrow deposit - maybe you shouldn't be buying a house just yet? – littleadv Jan 23 '13 at 23:36
  • @littleadv - I've got plenty of money for the down-payment and everything else, this is just one of the long list of scenarios that has popped up on my list. – rjzii Jan 23 '13 at 23:57
  • If you can avoid taking money out of the IRA - don't take money out of the IRA. – littleadv Jan 23 '13 at 23:58
  • @littleadv - Well yes, but I'm also curious as to how that works now regardless. – rjzii Jan 24 '13 at 0:05
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    Note - it's 120 days, not 180. See my answer below. (I'd also go on record for a 'ditto' to littleadv remarks, my factual, excellent answer below, notwithstanding) – JoeTaxpayer Jan 24 '13 at 5:20
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If you received a distribution to buy, build, or rebuild a first home and the purchase or construction was canceled or delayed, you generally can contribute the amount of the distribution to an IRA within 120 days of the distribution. This contribution is treated as a rollover contribution to the IRA.

This is from my friend, Publication 590. See Page 51, next to 'TIP' in second col.

  • As of October 2017, this tip seems to have moved from page 51 to page 59. Is there a permanent link to the version which has it on page 51? – Tanner Swett Oct 17 '17 at 0:03

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