Comments on: First Time Home Buying: Using IRA to Buy a Home

By: james cranfill

james cranfill — Fri, 12 Aug 2011 21:56:25 +0000

I am 75 years old, not contributing to IRA, but making RMD. Can I withdraw all of the traditional IRA and buy a home for myself ?

By: Dean

Dean — Sun, 12 Jun 2011 20:33:20 +0000

I think I really screwed up. We own a home that became to big for us. Couldn’t sell it, so we will be renting it out. Found a nice condo for $150th. Couldn’t get a loan, so pulled $150th out of our IRA I am old enough, 64, but never took in consideration that we will have to pay regular income tax on the $150,000 that we pulled out. Any way around this. Oh, please, tell me there is.

By: Tony

Tony — Mon, 18 Apr 2011 06:00:22 +0000

Thank you for the helpful information.
We are hoping you can help us with a way to borrow or withdraw from one of my Anuity funds with the least amount of penalties or tax hits? (Newengland Carpenters Annuity Fund)
I am 30 years old & my wife and I just purchased our first home.
I have a 401 that I am not tapping into, but I also have an anuity fund with the New England Carpenters Annuity Fund from 11 years ago when I worked in the union in Massachusetts. It was only for a short time so there is only $4100.00 & I can no longer contribute as I am not a member of the Union. We currently live in Florida & I just purchased my 1st home and would like to borrow or withdraw.
We closed on home 3 days ago, but when I called the Anuity fund they told me that my closing was to close, & not enough time to do paper work and usually 2 week, 1 month approval span. Anyway, she said I may be able to borrow if I need any improvements done on the home. I was not sure what to do. I told them I would call them back. Anyway, I borrowed $3500.00 from my father to put towards the down payment and I told him I was going to pay him back after I withdraw or borrow from my annuity. Question;
Because I closed on my home 3 days ago, is there still a way I can withdraw or birrow from my annuity as a first time home buyer?
Thank you for your time? Tony

By: Robin

Robin — Fri, 18 Feb 2011 06:30:44 +0000

I am considering taking money out of a traditional IRA account as a down payment on a foreclosed home that is in good condition. If I take it out at 59 rather than 59 and 1/2, will I still pay the 10 % penalty? If I wait until 59 1/2, I will only pay the taxes from the money removed? Would I be better off to take out less than ten thousand? Of course, if I wait, the house may be sold.

By: nasir

nasir — Wed, 02 Feb 2011 19:01:39 +0000

i withdraw ira, to buy home, but i am ending up not buying, can i put money back in ira and not pay penelties ?

By: Andrew

Andrew — Sat, 16 Oct 2010 17:47:05 +0000

I think withdrawing Roth IRA money for a down payment could be a good idea. If you otherwise would be saving the same down payment money in a taxable account then it could be ok. If you have enough to do both; save for your down payment and fully fund retirement accounts then great, do it! The tax advantages of a Roth have been somewhat oversold. Roth’s are just a good tool to add to your total asset toolbox allowing you to determine when to pull out taxable vs tax-free income. When do do the math paying the tax now(say 28%) and then investing the remainder vs investing the full amount and paying the same tax rate(again 28%)the results are identical. Don’t believe it? Do the math with a compound interest calculator, you’ll have exactly the same assets available to spend. So the main advantage of your Roth over your 401K maybe asset choice. If you change jobs then rollover your last 401 K into a traditional IRA and your have full control of asset allocation. So bottom line be a disciplined saver and a smart investor in all assets including your house then you’ll win long-term

By: Mel Wheeler

Mel Wheeler — Wed, 29 Sep 2010 16:47:44 +0000

I am 38 years old and have a new IRA I just established. The family across the street is short selling their home. It is my understanding after speaking with a few companies, http://www.selfdirectediragroup.com and pensco.com I can purchase the home without taking a distribution tax and penalty free. Is anyone else aware of this or completed a similar transaction?

By: Deanna

Deanna — Thu, 17 Jun 2010 03:02:39 +0000

Personal opinion re: the 70 year old – I suspect that the “financial planners” won’t be able to come up with any investments that SAFELY get 9% annual return on the 100K. What they DO get is a percentage of your mother’s money when they sell her investment “products”, so that money has to earn even more than 9% for her to break even on the invest-vs-rent scenario. To be fair, there are cost to owning a house (taxes, repairs), but the house can also be expected to appreciate over time. If your mother is disciplined, you could have her buy the house, but set up to have $750/month automatically deposited into a special “house expense” bank account (money has a way of spending itself if it is sitting in your “regular” acct), and let the next egg build from the difference between what it costs to own her own home and what she would have otherwise spent in rent. There are I believe some other advantages — should she become unable to care for herself and have to rely on the government for extended care they will make her spend all her cash before they’ll help, but if I remember correctly won’t take her home until after her death. Doesn’t help the estate, but does help her have somewhere to live if she is in and out of care many years down the line.

By: Larry

Larry — Fri, 09 Apr 2010 14:26:36 +0000

My wife and I are considering doing the same thing. If you find credible advice, please share. Good luck!!

By: Mark

Mark — Sat, 27 Mar 2010 15:43:47 +0000

My wife and I have decided to liquidate the IRA to buy a house for cash and not have a mortgage. We’re around 54 years old and willing to take the taxe hit. Is this a horrible idea?

By: Retiree

Retiree — Thu, 29 Oct 2009 16:16:08 +0000

What if you fund a retirement account for the purchase of saving tax-deferred income as a down payment? With mutual funds, you get taxed. Did I just find a loophole?

By: Bryan

Bryan — Tue, 20 Oct 2009 00:32:44 +0000

80/10/10 loans are still around? Who offers these?

By: keviin

keviin — Thu, 12 Feb 2009 23:08:18 +0000

We are considering doing something similar to what you described. I have a couple of questions. We are considering purchasing a house in february of 2010. Should we fully fund both our IRAs this year(2009) to get a tax break, and then withdraw the money before we close? Is the withdrawal subject to taxes?

By: Tim

Tim — Thu, 23 Oct 2008 02:55:42 +0000

What happens in this case ( as stated in the second paragraph). Approaching 70 years old, can I sell the house out of the Roth to my wife?

By: Chris in Sacramento

Chris in Sacramento — Mon, 28 Jul 2008 16:57:51 +0000

Seems to me that it might be worth pulling 10,000 out of my Roth IRA to avoid paying $200/month in PMI. But there’s definitely a long-term price to be paid for not letting the money compound.

By: Steve

Steve — Wed, 05 Dec 2007 19:13:38 +0000

I have questions and comments about what’s best to do in my situation.

I have a 70 year-old mother who has $100K in an IRA account… She has rented for 26 years despite numerous attempts to get her to purchase a home… she retired in July of 2007 and now wants to buy a house with her tiny next egg. We have found her a place for 75K…. QUESTION: Can she and/or should she buy the house cash with the IRA and avoid any taxes… it appears from the comments that she would only save taxes on the initial $10,000.00… She is on a limited income and is drawing SS and from an annuity that runs out in 5 years… Her current rent is 750.00 a month. My concern about financing the house is that 1.) she will be paying interest on the 15 year note. 2.) in 5 years when she needs money she will not be able to borrow against the house because of her limited income.

Is there any advice that anyone can offer based on these circumstances?

We have discussed some of this with “Financial Planners” and they all recommend continuing to rent and let them try and grow the 100K in 5 years to $145K – 175K a major risk in my opinion and not one that addresses her rent situation which will be closer to 900.00 over the next 5 years.

Mathematically speaking I see most of the gains in the stock market (if it gains at all) being washed out by interest or increases she will incur in other areas of her life… like rent, cost of living increases, etc. Point being: owning a home seems to me to be the best investment under the circumstances… but how to minimize her tax burden is what I think we need help with.

By: EMF

EMF — Mon, 03 Sep 2007 01:44:22 +0000

If you’re contemplating doing this, a Roth IRA would be the way to go. If done using a traditional IRA then you get hit with all the taxes in one year and could very well end up in a higher bracket.

And if the choice is between saving for a down payment in a Roth Vs saving for the down payment in a taxable account, the choice of a Roth is a no-brainer.

By: Phil

Phil — Wed, 29 Aug 2007 23:40:01 +0000

Nickel, I see how your strategy worked and think it was probably the best move you could have made. I just worry about folks putting every dime of liquidity into equity; loss of income then puts those folks in dire straits.

By: nickel

nickel — Wed, 29 Aug 2007 21:41:29 +0000

I agree that unnecessarily raiding your IRA is a bad idea. In our case, however, the alternative would’ve been to not fully fund the IRAs in the first place while we were saving for a down payment – or to not buy a house. Our hope was that we could stuff the IRAs full of money and then get away with not raiding them if we could scrape together more money than we initially projected. We couldn’t, so we ended up taking a portion of the money back out, but we were no worse off than had we saved for the down payment straightaway.

In the end, we came out way ahead on the house, so it worked out for us.

By: Robert

Robert — Wed, 29 Aug 2007 21:37:47 +0000

I agree with just about everyone else. Even though you will (hopefully) get some appreciation out of your house, it is highly likely is won’t be more than the gains you would get from keeping your IRA funds together. The exception to this is if you keep your IRA as a small interest account and who does that?

One way this _could_ work would be if you are getting a great price on the house and thus could take equity back out to put back into your IRA. However you would then be paying the mortgage interest on that. The interesting thing here is that interest could be tax deductible.

By: retirehappy

retirehappy — Wed, 29 Aug 2007 21:14:30 +0000

Seems like a bad idea, once it goes it you should keep it in until retirement because once it comes out your balance isn’t growing as fast.

By: Walt Padabney

Walt Padabney — Wed, 29 Aug 2007 16:35:39 +0000

Just because you can do it doesn’t mean you should.. You have to compare the after tax cost of borrowing funds vs. the Tax Free growth of invested funds. For example, If you have to borrow at 7% and are in a 30% state and federal effective rate, your tax free equivalent return needs to only be 4.9%… So keeping the Roth funds makes the most sence if you invest well enough to earn more than CD rates.

By: akb

akb — Wed, 29 Aug 2007 16:15:19 +0000

Correct me if I’m wrong, but with a Roth IRA you can withdraw your contributions at anytime, its the ability to take out the $10,000 in earnings without penalty or tax which is the benefit.

Personally, I think if you can meet your retirement saving goals with your 401k plan, it makes a lot of sense for prospective home buyers to take advantage of the ability to grow their down payment tax free.

By: Debbie

Debbie — Tue, 28 Aug 2007 15:58:19 +0000

On the other hand, if knowing you can pull the money out to help with the down payment if you need to gets you to invest more than you otherwise would have, then that’s a very good thing. If it turns out you’ve put too much in, it’s okay because you can get it back out. And having to pull it out will make you sad enough that you’ll try really hard not to.

I think nickel’s strategy was brilliant. I wouldn’t be surprised if there were still more in that IRA than there would have been if nickel had been conservative and kept more money out to use for a down payment.

Maybe waiting longer to buy a house would have been a good strategy, too, but it’s harder to tell about those things, especially if your monthly rental housing expenses are similar to your monthly buying housing expenses. Now every year is one step closer to the end of the mortgage.

Disclosure: I bought my house pretty much the second I possibly could. This turned out not to be a mistake for me because my income has not risen as fast as housing prices have. (My income has doubled, housing prices have tripled.) Normal people who don’t have trouble keeping up with first-year-teacher salaries should probably consider waiting.

By: Phil

Phil — Tue, 28 Aug 2007 14:47:12 +0000

Given the time value of money, early contributions to an IRA are worth more than contributions made later. Accordingly, I tend to agree with Mike and Aaron.

In my opinion, one of the biggest mistakes a first-time homebuyer can make is to deplete his/her savings to afford a larger down payment. 5% is often all that’s required to capture excellent rates on your first mortgage. By holding back some funds, you safeguard yourself to some extent against losing the home if you suffer a major financial setback.

By: Aaron

Aaron — Tue, 28 Aug 2007 04:42:21 +0000

I have to agree with Mike on this one. Taking that money out of the Roth IRA has to be the very last resort because compounding makes the gains in a Roth IRA extremely impressive over time.

By: MoneyNing

MoneyNing — Mon, 27 Aug 2007 21:17:17 +0000

It is generally believed that it is a bad idea because taking money out of your retirement funds will greatly slow down the growth of your retirement nest egg.

By: Mike

Mike — Mon, 27 Aug 2007 19:49:46 +0000

I’m firmly against pulling money out of a Roth IRA for a down payment. Everything in that account is tax free forever*. That’s very powerful, especially with 30-40 years of compound interest working in your favor.

[*] – Or until the law changes

By: razmaspaz

razmaspaz — Mon, 27 Aug 2007 18:28:41 +0000

My situation is almost an exact mirror of yours. I’m sure I’m approaching those pesky income limits as well. I have a feeling in fact that I am about to learn the hard way about all those retirement account limits. I am happy I used the IRA for the down payment. If I had to sell my house for some reason right now, I think I would be upside down on the house. The only thing that will keep me from owing the bank money in that case is the larger down payment.