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J. Mario Pre…, Real Estate Pro in San Francisco, CA

Can I use my IRA to buy a house?

Asked by J. Mario Preza, CRB, CDPE, San Francisco, CA Fri Mar 30, 2012

I have a prospect who called recently asking me what the potential ramifications might be if she were to close and IRA to use these funds to buy a house. Not being an accountant, and not wanting to give that sort of advice, I referred her to her accountant to get the insights needed. However, is anyone on the forum familiar with these sorts of financial (planning) maneuvers? It isn't the first time I hear something similar. Thanks.

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She should not close the IRA, otherwise, penalties and tax issues arise. She should transfer her IRA to a real estate IRA where she can purchase real estate. She cannot live in the property and she cannot buy a property she already owns.

Everything must be titled under her IRA and she cannot receive any benefits, such as rent. All expenses must be paid from the IRA as well.

As an investment, she could also pool her money with other IRA investors. There are companies and flippers that specialize in this sort of thing and provide a good rate of return.
0 votes Thank Flag Link Fri Mar 30, 2012
what is the rate
Flag Thu Oct 24, 2013
what is the rate
Flag Thu Oct 24, 2013
There is a difference if she is buying a residence or an investment. If it is a residence she will pay the penalty and the taxes just as if she were taking cashing it out. The taxes come due if the person gets benefit from the money. The growth is tax free as long as the benefit is to the IRA trust not the person.
If it was for an investment she could structure it as a self-directed IRA which would be investing in real estate instead of securities. She'd need to do the research to find an out how she’d make it work but unless things have changed in IRA law in the last few years it can be done. There are a few companies that run the IRA for clients investing in real estate. One problem I ran into was borrowing.
The other method she could use is to borrow from her IRA and then pay it back with interest.
0 votes Thank Flag Link Fri Mar 30, 2012
Did you ever find a way to borrow? I would like to use $200,000 down on a $600,000 purchase on an investment property.
Flag Tue Apr 9, 2013
Jed Lane, Real Estate Pro in San Francisco, CA
MVP'08
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If she liquidates her IRA she will be hit with both a hefty penalty and a tax. Very costly. She ought to see if her IRA can loan her the money. IRA's can also be used to buy investment properties - you need a self-directed IRA to do that though, and there are a lot of compliance issues, that if done wrong can trigger the penalty and tax. You can't use a self-directed IRA to buy a personal residence.
0 votes Thank Flag Link Fri Mar 30, 2012
I would tell her to be careful about taking money out of her IRA as she could pay a penalty + taxes on gains in the IRA. Additionally, one should always be careful with money set aside and intended for retirement
0 votes Thank Flag Link Fri Mar 30, 2012
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