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to a distribution from an individual retirement plan, a
distribution from a section 401(k) plan will not qualify for the
first home purchase exception.
TESPHE is a defined contribution pension plan qualified
under sections 401(a) and (k). TESPHE is not an individual
retirement plan as defined in section 7701(a)(37). Therefore,
the $50,674 TESPHE distribution to petitioner is not subject to
the first home purchase exception in section 72(t)(2)(F).6
Petitioner’s Basis in the Distribution
Petitioner alternatively contends that he had a basis in the
1999 distribution from his TESPHE account equal to the total
amount of his previously made loan repayments. In this regard,
petitioner relies on the fact that he made these repayments with
after-tax dollars.
Preretirement distributions from a qualified retirement plan
are treated as nonannuity distributions. See sec. 72(e)(1). If
the distribution is received before retirement, only amounts
allocable to the “investment in the contract” (i.e., basis) are
6 Petitioner also fails to qualify as a “first-time
homebuyer” within the definition of sec. 72(t)(8)(D)(i)(I).
Petitioner, as well as his then wife, had an ownership interest
in the Michigan residence in 1999. Petitioner began construction
on his Georgia residence in 1999. Thus, petitioner had an
ownership interest in the Michigan residence within the 2-year
period ending on the date he acquired his Georgia residence. See
sec. 72(t)(8)(D). See also sec. 72(t)(8)(B), which limits the
amount of distributions treated as first-time homebuyer
distributions to $10,000.
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Last modified: May 25, 2011