Using your IRA for First time home purchase.

[Bilgefisher]

First home. Even if you are under age 59½, you do not have to pay the 10% additional tax on up to $10,000 of distributions you receive to buy, build, or rebuild a first home. To qualify for treatment as a first-time homebuyer distribution, the distribution must meet all the following requirements.

1. It must be used to pay qualified acquisition costs (defined later) before the close of the 120th day after the day you received it.
2. It must be used to pay qualified acquisition costs for the main home of a first-time homebuyer (defined later) who is any of the following.
   1. Yourself.
   2. Your spouse.
   3. Your or your spouse's child.
   4. Your or your spouse's grandchild.
   5. Your or your spouse's parent or other ancestor.
3. When added to all your prior qualified first-time homebuyer distributions, if any, total qualifying distributions cannot be more than $10,000.

If both you and your spouse are first-time homebuyers (defined later), each of you can receive distributions up to $10,000 for a first home without having to pay the 10% additional tax. Qualified acquisition costs. Qualified acquisition costs include the following items.

• Costs of buying, building, or rebuilding a home.
• Any usual or reasonable settlement, financing, or other closing costs.

First-time homebuyer. Generally, you are a first-time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild. If you are married, your spouse must also meet this no-ownership requirement.
Date of acquisition. The date of acquisition is the date that:

• You enter into a binding contract to buy the main home for which the distribution is being used, or
• The building or rebuilding of the main home for which the distribution is being used begins.

This is directly from the IRS website under Taxable Distributions

I plan on using a portion of my Roth IRA for a down payment. I don't have to use my Roth, have sufficient bank funds ,and easily qualify for 0% down through a VA loan. But, the longer I am on this forum, the more I realize I am not fully utilizing my money by keeping it within a retirement fund. If I use the 10k towards my down payment, I have effectively withdrawn 10k from my roth without the 10% penalty. (From what I understand, I can actually withdraw my entire contribution and up to 10k in roth earnings) While it would be tied up in my home, this money can still be used in the future.

So, I thought I would ask. What are your opinions of early withdrawal of retirement funds towards your goals to get out of the rat race?

 

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[AroundTheWorld]

I think it is great that you are considering all your assets and how to put them to best use....

About 5 years ago, we cashed in a retirement account, and we have made huge returns since then. It was well worth it for us.

However, IMO, pulling money out of retirement for the purchase of a doodad is something else entirely... (yes, even a house).

Here is another thought...

You could convert your IRA to a self directed IRA and purchase real estate investments / hard assets with the money you have there.... and you could still take advantage of the VA loan.

 

[Edge]

[/list]But, the longer I am on this forum, the more I realize I am not fully utilizing my money by keeping it within a retirement fund.

I might be one of the posters that indicated you weren't utilizing your money if it was in a retirement fund, so I wanted to clarify. I am critical of my company sponsored 401k plan because it is limited investment. Not the case with the IRA. You are in control of the IRA, go the self-directed route and play by the rules.

Since by your own admission, you don't need to go to the IRA to get the funds, I wouldn't. If you have a 401k that you can borrow from, that might be something to think about.

I definitely second everything ATW said above.

 

[Bilgefisher]

I did some reading on self directed IRAs today. I have quite a bit to learn on them. The one downside I can see is you have to have a custodian for your funds. To me it just looks like a middle man soaking up funds. I suppose its no different then my stock fund fees though. I need to read Diane Kennedy's book on the subject.

 

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[AroundTheWorld]

It is just like anything else......

If you find an excellent professional (firm, etc.) then they are worth the money.

It is hard to let go - - - but spending 5K can bring you 50K.

 

[LongHorn]

New to the site and to self-directed IRA investing. Bilgefisher, could you share some more details about the book by Diane Kennedy?

 

[markhill]

Many of our clients transfer over to Self Directed IRA's. Even though they may not want to pay the fees to do it, 99% of the time they feel its the best decision they've made because they finally get to control what is going on inside of their IRA.

You definitely want to make sure that you are not "self dealing". This is the biggest thing that gets people tripped up when dealing with their SD IRA. You definitely want to work with professionals to make sure they can educate you on this so you don't break any rule and lose the tax shelter and benefits your IRA holds.

If you want to learn more about the specifics of IRA's, IRA LLC's, Real Estate IRA's, etc. our Building Wealth Daily newsletter covers all of these topics and a lot more. You can access it on our site: WilliamsHillGroup.com

If you have any other questions don't hesitate to contact me directly.

Have a great day,

Mark

 

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[LauraMorenoCa]

I am not sure if you should use your retirement account to buy your home, but I've heard there could be no penalties if done right.

Also if you need any help on the process to buy your home, here is a checklist that I've made: How To Buy A House Checklist

I hope you find value on it! I made it after buying my first home.

Thanks again and all the best!

Laura