Funds to get started

13 Replies

We are considering cashing in an IRA account to have funds to make our first purchase. We thought we would throw this thought out to BP to see what thoughts the experienced might have...

Since I am not to sure about to many details of your life I can't give sound advice. But if you aren't old enough and withdraw from an ira you will be taxed at your current bracket as income for the amount you withdraw. Additionally you will be penalised 10%for the amount you pull. That should be painful enough to discourage using your ira if you aren't of age. If you are buying a residence you will live in, you can get a loan for 3.5%down. If you can't afford that you should stick to renting while you build up your funds and figure out expenses to cut. 

You might want to take a look as transferring your money into a self directed IRA. You can use the funds that way to find your transactions, without taking the withdrawal penalty.

There are some stipulations involved, but take a look at the iPlan Group or another similar source. They have the answers to the questions you seek.

https://www.iplangroup.com/asset-types/real-estate-investing/

While what @Brian Ky says is generally true, it may not apply to you completely.

You may withdraw up to $10,000 from your retirement account to purchase your first home (that you will live in) without paying the 10% penalty. The amount you withdraw is still included in your taxable income if you are withdrawing from a 401k or a Traditional IRA. If you are withdrawing from a Roth IRA, then you've already paid the taxes on that money and you may withdraw the funds tax free AND penalty free.

As always, talk to somebody with whom you can share ALL of the details of your particular situation so that you can get advice specifically tailored to you.  What I've outlined is general rules.  

While a self-directed IRA or self-directed solo 401k may be invested in real estate, the account owner is prohibited from using the property. However, the solo 401k owner can process a solo 401k participant loan of up to $50k for the purchase of a primary residence and can stretch the solo 401k loan payments for up to possibly 30 years. See following link regarding the solo 401k loan rules.

http://www.irs.gov/Retirement-Plans/Retirement-Pla...

From what I have researched thus far, the solo 401k or self directed IRA have a qualifier of being self employed, correct? We both currently have full time jobs and he is does not have any form of self employment. This IRA is my Husband's account. We do have equity in our home to use...we are just considering all our options to get a jump start.

@Angela Palmer a self-directed IRA doesn't have anything to do with type of employment. You move your IRA to a custodian who allows real estate investments. It has a lot of rules as mentioned above. If your husband's IRA is a ROTH, you can pull out 5-yr old money he put in. Not growth, not last years contribution. You also lose tax-free growth in retirement. I would suggest saving up. Get on a budget, work more, etc. If your why is bigger than your need for latte's, vacations and fancy cars, you will save money! Drive your beater to your next rental and build wealth!

Originally posted by @Angela Palmer:

We are considering cashing in an IRA account to have funds to make our first purchase. We thought we would throw this thought out to BP to see what thoughts the experienced might have...

Angela, taking early distribution from your IRA will subject you penalties are well as taxation (both on state and federal levels). In my opinion this would be poor financial choice. If you wish to start investing in real estate you can do so by utilizing SDIRA as it has been suggested earlier or look for another creative methods to invest in your own name with limited resources or just save up.

Originally posted by @Angela Palmer:

From what I have researched thus far, the solo 401k or self directed IRA have a qualifier of being self employed, correct? We both currently have full time jobs and he is does not have any form of self employment. This IRA is my Husband's account. We do have equity in our home to use...we are just considering all our options to get a jump start.

Angela, if you already have an IRA you can establish self-directed IRA and transfer your current IRA into it. Truly self-directed Solo 401k plan is more powerful, gives you more control, is cost effective but it will not work for you unless you are self-employed or own a business w/o full time employees other than you and your spouse.

I agree that the self-directed solo 401k is generally a better retirement plan.

Agreed, a self-directed IRA does not require self-employment activity, but a Solo 401k does. If you're eligible for a Solo 401k, there are plenty of benefits this plan offers above a self-directed IRA or IRA LLC structure.

Depending on the intended use of the property (as well as management and any rehab and maintenance), a self-directed IRA may be a good choice because it will preserve your retirement funds allowing you to avoid taxes and penalties and continuing to defer taxes on the investment.

Most people will cringe a bit when they hear mention of a distribution of retirement funds to purchase a home, especially if this is an early distribution.

You may want consider opening a self-directed solo 401k and transferring the IRA to the solo 401k; subsequently, you will have the option to process a solo 401k loan, which will not be considered a distribution. See following IRS link for more information regarding the solo 401k participant loan rules.

http://www.irs.gov/Retirement-Plans/Retirement-Pla...

Thank you All for your responses!  I will do more research of the options as to not take a penalty hit.  

Angela - if you have questions I can direct you toward some options and more educational material.

Best of luck!

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