I possibly found a house I want to buy sooner than expected. I already contributed the max ($5000) to my Roth IRA for 2012. I know you can withdraw, penalty & tax free, $10,000 in contributions from the roth IRA for a first time home buyer (which I will be). I don't want to withdraw the full $10,000 but is it possible to borrow the $5,000 I contributed for 2012 to put towards the down payment, therefore lowering my monthly mortgage payments, then later (before the end of the year) put $5,000 back into my roth IRA for 2012? Or since I already contributed the max for this year, would I not be able to do that?

First off, contributions made directly to a Roth IRA are usually available for distribution (as a non-qualified distribution) tax and penalty free.

Second, the first time home buyer's distribution is a qualified distribution, which means you must have an established Roth IRA account for at least 5 year and it is not subject to the non-qualified distributions' "Roth ordering rules". This distribution is also taken out of earnings. Any excess basis you have in the account after the year in which take a first time home buyer's distribution (FTHBD) will be reduced by the amount of the FTHBD. There is a $10k lifetime limit on the FTHBD.

Third, you must qualify as a first time home buyer. This seems to be rather cut and dry, but there are exclusions and also some generous definitions of what a "first" home is. I guess those writing the legs or regs had some children they wanted to take "Advantage" of this...

Fourth, it should be point out that this is one of the most ambiguous and more complex distributions you can take from a Roth IRA. There isn't much written about it, and the IRS didn't want to touch wrt to distribution ordering etc in the pub 590.

I don't know the answer about "undoing" the Roth IRA contribution for this year and "redoing" it later. I will research a little later, but maybe some else will come along that knows the answer in the mean time.

re: "undoing" roth contribution and "redoing" it in the same year.

my suspicion is confirmed that yes, you can do this. if you do this, you'll get a 5498 showing you contributed $10k to a roth IRA for the current tax year (these are mailed out in May, keep these as it is the best way to prove what your basis is). You will also get a 1099 from the managing institution showing the "undo." These are mailed out usually by the end of Jan. The net of the 5498 and the 1099 should be $5000 or less for 2012. You MUST call the managing organization and explain you made a mistake and want your contribution for the year back. They need to code the 1099R correctly so the IRS doesn't doesn't blow an o-ring. You'll have to pay tax + 10% penalty on any EARNINGS. This is done on form 5329 I believe.

At this point, it is as if the contribution never happened. So, you are free to contribute again by 4/15 of the following year.

Assuming you can get the institution to code the 1099 correctly, this is much more straight forward than a first time home buyer's distribution.

pub 590, pg 62 under the title, "are distributions taxable?"

Thank you so much, Bichon Frise, for all the info! This is really helpful!

I should also add, I am not a tax expert (just an everyday working stiff) and although I have attempted to be accurate, I wouldn't take anything I said to be gospel.