Adjust Text Size
small medium big

Q&A: Using IRA Funds to Purchase a Home Outside the U.S.

Written by Nickel - 4 Comments
  •  Tip It!

I just received an interesting question from a reader that relocated from New York to Denmark in 2003. They have since decided to make the move permanent, and have a question about using IRA funds to help with the purchase of a home overseas:

“Can we withdraw from our traditional IRAs to use as a down payment on a house (we are first time buyers) if that house is in another country? I know that you can do this in the United States, but am curious if we can withdraw the money without penalty if our first time purchase is overseas? Any help would be greatly appreciated!”

Let’s first set aside the issue of whether or not using IRA funds to purchase a house is a good idea. Rather, let’s take a look at the rules…

Ever since the 1997 Taxpayer Relief Act went into effect, people have been able to withdraw up to $10,000 from their traditional or Roth IRA to assist with first-time homebuyer expenses. Moreover, Roth IRA contributions can be withdrawn at any time, and for any reason, so this limit really only applies to earnings in your Roth IRA. Qualified first-time homebuyer withdrawals are potentially subject to taxes (if they represent pre-tax contributions to a traditional IRA), but are otherwise penalty-free.

So what about the issue of doing this overseas? I haven’t actually been able to come up with an authoritative answer. I looked at IRS Publication 590 as well as the instructions for IRS Form 8606 and didn’t see anything the specified where the home has to be. While my knee-jerk reaction would normally be that the home would have to be in the United States, there was a recent discussion on the Get Rich Slowly forums where this topic came up. Here’s the critical bit of the discussion:

“The interesting twist in all this is that your first home can be anywhere in the world. I couldn’t find anything in the code that explicitly addressed this so I called the IRS and spent quite a while on the phone with them; they called me back and said they couldn’t find anything that would prevent my from using my Roth IRA to help my buy my first home in Canada, and the spirit of the law is more to encourage home ownership among Americans rather than specifically for people to buy homes in America.”

Keep in mind that a forum discussion isn’t exactly authoritative when it comes to IRS rules, so… Unless someone around here can provide an authoritative answer (backed up by IRS documentation), I would recommend calling the IRS and verifying this before using those funds.

This article is part of my Money Q&A Series.

Published on September 10th, 2007 - 4 Comments
Filed under: Money Q&A, Real Estate, Taxes

About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

Related articles...

» How to Avoid ATM Fees
» First Time Home Buying: Using IRA to Buy a Home
» How to Write a Mortgage Gift Letter
» Using Retirement Funds to Pay for College
» From the Archives (September 7th – September 13th)
» Buying Gas With a Debit Card
» Santa Dollars and Bunny Bucks
» Cashing in With the Vanguard Tax Exempt Money Market Fund

Was this article useful? Please sign up to receive our content via e-mail:

You will receive only the daily updates, and can unsubscribe at anytime.

4 Responses to “Q&A: Using IRA Funds to Purchase a Home Outside the U.S.”

  1. 1
    Andrew Waisanen Says:

    I thought I would add this to your non-US IRA real estate discussion. I have purchased investment real estate overseas numerous times with my self directed IRA account. This is a bit different than the readers issue, as I am not living in any of the properties, but, the IRS allows overseas real estate to be in my IRA if it is for investment purposes only (IRA is the owner of record, not me).

  2. 2
    saurav Says:

    Hi Andrew,

    that is interesting bit of info. So if i understand it correctly, u used your IRA funds to invest in real estate out side USA…and this is treated same as any other stocks/MF/bonds investment that u otherwise do within your IRA account? Also, can an IRA custodian answer questions on this topic? Appreciate your response. Thnaks!

  3. 3
    saurav Says:

    Hi Nikel,

    Even i was following up with IRA on this question..and they still need to get back to me about this. Do u have any update on the status of this regulation since 2007, when u published this article? Or is the status same as it was back in 2007?

    Also, as u say there is nothing explicitly mentioned in IRS about this specific case/question…do u think one can claim this exemption…and debate that since nothing excludes this….it can be considered included

    Appreciate your response. Thnaks!

  4. 4
    shelly Says:

    I am a regular online frugal shopper and mostly use cash back portals like Bing, ShopAtHome, AAfter Search and Ebates.

Leave a Reply

Top Cards by Category

 
Apply now for Chase Freedom® Visa - $200 Bonus Cash Back

Earn $200 Bonus Cash Back after you make $500 in purchases in your first 3 months. 5% Cash Back on up to $1,500 spent in bonus categories each quarter.

 
Apply now for http://www.fivecentnickel.com/rewardpoints.html

Earn 30,000 bonus miles toward Award Travel when you spend $500 on the Card in the first three months from account opening. Receive double miles on Delta purchases.

 
Apply now for American Express® Gold Card

Receive 10,000 Membership Rewards bonus points when you spend $1,000 in 3 months of Card membership.

 
Apply now for http://www.fivecentnickel.com/lowratebalancetransfercreditcards.html

Enjoy a 0% introductory rate for 18 months on Balance Transfers and 6 months on Purchases. Earn up to 5% cash back in categories that change.

 
Apply now for Discover® More Card - $0 Balance Transfer Fee!

Enjoy no balance transfer fee for a limited time. 0% introductory rate on Balance Transfers and Purchases. Earn up to 5% Cashback Bonus in categories that change like gas, restaurants, department stores and more. Limitations apply*

 
Apply now for http://www.fivecentnickel.com/lowrateplatinumcreditcards.html

Enjoy no balance transfer fee for a limited time. 0% introductory rate on Balance Transfers and Purchases. Earn up to 5% Cashback Bonus in categories that change like gas, restaurants, department stores and more. Limitations apply*

 
Apply now for The Business Platinum Card® from American Express OPEN

Enjoy amenities for you and your business, like: complimentary airport club access, including American Airlines Admirals Club(R) lounges.

 
Apply now for http://www.fivecentnickel.com/studentcreditcards.html

5% Cashback Bonus in categories that change like gas, restaurants, department stores and more. Limitations apply*. Up to 1% unlimited Cashback Bonus on everything else. No annual fee

 
Apply now for American Express Premier Rewards Gold Card

Earn 3X points on airfare, 2X points on gas and groceries, and 1X points on everything else.

 
Apply now for http://www.fivecentnickel.com/credit-cards/credit/bad

Reports to 3 major credit bureaus monthly and acceptance at millions of locations worldwide, including website purchases and reservations.

Previous
Pause
Next

FiveCentNickel User Survey