Withdrawal from rollover IRA

Under IRS rules, you can withdraw up to **$10,000** (lifetime limit) from your IRA for a first-time home purchase without paying the 10% early withdrawal penalty, even if you are under age 59½. If you are married, your spouse can also withdraw up to $10,000 from their own IRA. **Tax Implications:** 1. **Income Tax:** The distribution is still treated as taxable income. You must report the amount on your federal and Massachusetts state tax returns. 2. **Withholding:** When you request the distribution, the custodian may offer to withhold taxes. If you don't withhold enough, you may owe a balance at year-end. 3. **Reporting:** To avoid the 10% penalty, you must file **IRS Form 5329** with your tax return to claim the "First-time homebuyer" exception. 4. **Timing:** The funds must be used within 120 days of the withdrawal for "qualified acquisition costs," which include closing costs and down payments. **Massachusetts Note:** Massachusetts generally follows federal treatment for IRA distributions; the $10,000 will be added to your Massachusetts Adjusted Gross Income and taxed at the prevailing flat rate (currently 5%).