I have a ESOP retirement plan and I am interested in taking out 20% for a down payment on a second home for my daughter to rent. I am 53 years old and live in Maryland. I know that I have to pay a penalty, but do I have to pay tax if I roll it over to purchase real estate?

ANSWER

The BIDaWIZ Team's Answer:

You will still owe federal and state taxes on top of the 10% early withdrawal penalty. However, if you rollover the funds from your ESOP into an IRA, you can withdraw up to $10,000 from your IRA to pay for a first home without facing the 10% early withdrawal penalty. We understand that this is not a first home, but the tax code allows parents to pay for the down payment on behalf of their children and to consider that the first home of their child as per IRS publication 590. But, if you are going to be the owner of the property, that's a different story.