Home Buying in 95835>Question Details

jwh7610, Home Buyer in Sacramento, CA

Can I withdraw $ from my IRA to give to son for his first time home purchase if I purchase home and sell to him on a land contract?

Asked by jwh7610, Sacramento, CA Sun Jun 9, 2013

I have owned multiple homes. For my son, this will be his first time buying. I know that I can withdraw IRA $, up to $20K from me and my wife, to give to my son for a first time purchase. The question I have is if there is any problem with doing this if I purchase a home with cash and then sell to him on a land contract?

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Check with an accountant. I'm not an accountant, so I can't give you accounting advice.

However, aren't you over-complicating things? If you have the money to buy with cash, then just buy the home and sell it to him on a land contract. Why involve your IRA in it?

If you're trying to recapture $20,000, then do two notes, a first and a second. Make the first for $25,000 or whatever would be necessary for you to then re-sell the note to recoup $20,000 in cash. You'd have to wait maybe 6 months to season that $20,000 note, but that's one way to get the $20,000 back without involving your IRA.

Another way--if you've got enough money in your IRA--is to move your IRA to one of the self-directed administrators out there (if it's not already in one of them). You can then buy the investment property with cash from your IRA. Then you can sell it to your son--all within the IRA--on a land contract.

Bottom line is that it's difficult and often inadvisable to mix IRA and other money...and unsafe, too. You'd probably be better keeping it outside the IRA or all within it.

Again, check with an accountant for further details.
0 votes Thank Flag Link Sun Jun 9, 2013
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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Why not cosign an FHA loan or if he is a veteran he can get in on a VA Loan for no money down. Contact a lender who is familar with VA and Fha Loans.
0 votes Thank Flag Link Wed Nov 6, 2013
You might check with a tax attorney. However this is my understanding: You can do what you want with your money after you withdraw it from your IRA. You have to pay the appropriate federal and state taxes on withdrawal. You also have to pay taxes on any interest you earn because the money is no longer tax sheltered once you withdraw it. You cannot use a self-directed IRA to make loans to yourself, your spouse or anyone in either of your lineages because they are "disqualified persons".
0 votes Thank Flag Link Tue Nov 5, 2013
Thanks everyone for the information. I know I need to talk to a accountant or attorney. Many of you gave me some great ideas and suggestions to pursue. I am in Wisconsin and the definition of a land contract is where I would hold the mortgage for another directly with no bank involvement, obviously for both the property and improvements. My son would make payments directly to me. He could claim the interest, i would claim the income. My goal with this is to free up an additional 20K for the purchase since prices have increased since i began this plan. Thanks again everyone.
0 votes Thank Flag Link Wed Jun 12, 2013
I agree with Don. It sounds a bit over complicated. Plus you can not sell just the land without the house or even vice versa. It is the parcel that you are selling and everything that comes with it.
0 votes Thank Flag Link Mon Jun 10, 2013
you need to talk to your accountant, your tax person and your IRA adviser.

Here are some ways I have seen parents help their children buy a home each has their own plus & minus and should be discussed with the appropriate professional:

1. Lend them the funds ( a deed of trust is recorded, parent acts as a private lender)

2. Sign as a non-occupant co-borrower (FHA loan)

3. Buy the home as an investment, rent to children as a lease option to purchase
0 votes Thank Flag Link Mon Jun 10, 2013
IRA questions are, as others have stated, a question to ask a CPA...and one that knows CA taxes because they don't always follow federal tax laws so you can get caught up in that.

I don't see that anyone has mentioned your ability to gift money to your son. Both your wife and you, can gift your son an amount that will more than $20K in a given year. You might want to consider that option in the equation as well. In the end, the simpler your solution the better. I'd check with your CPA, then a lender to get this figured out.

good luck.
0 votes Thank Flag Link Sun Jun 9, 2013
A CPA will have to answer this from a TAX STAND POINT. My opinion would be if you have either already paid income tax prior to your money initially going into your IRA and the $250k you are talking about withdrawing is already taxed then that should be able to be used for what ever propose you desire ie purchase or Real Estate. Or you have not yet paid tax on those funds and will need to withdraw more then the $250K as there maybe taxes withheld. Self Directed IRA's are great in theory but I do not see many people achieving success with those these days as they did in the early 2000's.
The sale to your son I assume would be a break even to you so there would be no gain to report there and or look to roll into another property via 1031 exchange.
It sounds like you would entertain being the lien holder initially and your son would take title/ownership. If you earn interest on the privately held mortgage I am not sure of a way of avoiding paying taxes on interest earned again your CPA would need to offer the final consult. I have a great CPA if you are in need and if you need help finding this property please let me know how I can better serve your needs.
Eddie Martini
DRE#01324382
eddie@bhrparkplace.com
0 votes Thank Flag Link Sun Jun 9, 2013
You should advise your accountant fro the proper guidance.

Chris
0 votes Thank Flag Link Sun Jun 9, 2013
i think this is beyond the expertise of agents on this site. You probably should be talking to an accountant or attorney. A lender might also have some help for you.
0 votes Thank Flag Link Sun Jun 9, 2013
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