Advice on allocation of funds from my IRA

Investor · Chattanooga, TN · Member since 2026 · 20 posts · 15 votes

First time home buyer here and my wife and I have been looking to buy a small multi family to house hacking. I may have found a great package deal on 2 multi family properties that I'm very interested in, however some of the money we would be using is coming from our Traditional IRA's and I dont want to incurr the early withdrawal penalty since there is another property included in the deal. Anyone dealt with this before or know a clear way I could structure the deal so that the IRS can clearly see that the money was used for our primary residence?

2 Reply

253 views

Most Popular Reply

Frank Lovaas

Real Estate Broker · Las Vegas, NV · Member since 2026 · 39 posts · 3 votes

8mo

Caleb, you are smart to pause before pulling money out of your IRA. Once you trigger taxes and penalties, you do not get a second chance to undo it.

Here is the simple way to look at it. The IRS allows up to ten thousand dollars from a Traditional IRA for a first time home purchase without the early withdrawal penalty. You still owe income tax on that amount, but you avoid the extra penalty. The key is that the money must be used toward buying or building your primary residence.

Now here is where your situation gets tricky. You are not just buying one property. You are buying a package with two multi family properties. From the IRS point of view, they do not care what you intend long term. They care how the funds are used and documented. If the withdrawal is clearly tied to the property you will live in as your primary residence, that is cleaner. If funds are blended across both properties with no clear separation, that can create confusion.

One practical approach is to structure the purchase so that your primary residence is clearly defined in the contract, settlement statement, and loan documents. In other words, make sure it is obvious on paper which property you are occupying and how much of your IRA funds went directly toward that purchase. Clean paperwork is your best friend here. The more simple and traceable the money trail, the better.

You may also want to talk with a CPA before moving the funds. Spending a few hundred dollars on good tax advice can save you thousands later. What is in it for you to slow down and structure this right is peace of mind. You get to house hack, build equity, and avoid writing a check to the IRS that you did not need to write.

Another angle to think about is whether you actually need to tap the IRA at all. There are ways to finance small multi family properties as an owner occupant with lower down payments, especially if you are living in one unit. Sometimes keeping retirement funds intact and using other financing options gives you more flexibility and less tax stress.

Have you already spoken with a lender about what down payment you would need on the property you plan to live in, separate from the second one?

2 Reply

See this reply in the discussion

18 Replies

Jump to latestLatest

Sort by

Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
8mo
Consider borrowing from your IRA instead of withdraw from it. It will save you bunches on taxes.
0 Reply
Caleb Davis
OP
Investor · Chattanooga, TN · Member since 2026 · 20 posts · 15 votes
8mo
@Greg Scott how would you go about doing that? We wouldn't be able to return it within 60 days
1 Reply
- Denise SuppleeBusiness Member
  Realtor · Willow Grove, PA · Member since 2017 · 1k+ posts · 662 votes
  8mo
  Quote from @Caleb Davis:
  
  @Greg Scott how would you go about doing that? We wouldn't be able to return it within 60 days
  Just a quick clarification, you generally cannot borrow from a Traditional IRA. That is a common misconception. Loans are typically only allowed from certain 401(k) plans. With an IRA, the closest mechanism is the 60 day rollover, where you temporarily take the funds and redeposit them, but it has strict rules and real risk if the deadline is missed.
  Also be very careful about using IRA funds for a property you plan to live in. That usually falls under prohibited transactions, which can trigger taxes and penalties on the entire account. A self directed IRA does not solve that if it benefits you personally.
  Timing wise, a rollover is often faster than waiting for a standard withdrawal, but it depends on your custodian. Before touching retirement funds, it would be wise to speak with a CPA or IRA specialist so you structure this correctly. Retirement mistakes can be very costly and hard to reverse.
  Spark Rental Co-Investing Club584 Reviews
  Website View Page
  0 Reply
- Doug SmithPro Member
  Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
  8mo
  Quote from @Denise Supplee:
  
  Quote from @Caleb Davis:
  
  @Greg Scott how would you go about doing that? We wouldn't be able to return it within 60 days
  Just a quick clarification, you generally cannot borrow from a Traditional IRA. That is a common misconception. Loans are typically only allowed from certain 401(k) plans. With an IRA, the closest mechanism is the 60 day rollover, where you temporarily take the funds and redeposit them, but it has strict rules and real risk if the deadline is missed.
  Also be very careful about using IRA funds for a property you plan to live in. That usually falls under prohibited transactions, which can trigger taxes and penalties on the entire account. A self directed IRA does not solve that if it benefits you personally.
  Timing wise, a rollover is often faster than waiting for a standard withdrawal, but it depends on your custodian. Before touching retirement funds, it would be wise to speak with a CPA or IRA specialist so you structure this correctly. Retirement mistakes can be very costly and hard to reverse.
  
  I did want to add one thing. As Denise pointed out, you can not typically borrow FROM an IRA, but your IRA can borrow provided it's a non-recourse loan (meaning if the Denise IRA is borrowing, then Denise can't personally guaranty). This leaves out 99% of the lenders out there, but it is allowed (we do it at lower LTVS), but what Denise says is right, you can't borrow from your IRA. If your IRA is to borrow, most people transfer it to a custodian that allows it and then sets up a "checkbook IRA" structure where the IRA is 100% owner of an LLC. The LLC then becomes the borrower, but again, you can't personally guaranty it. If you're going that route, definitely have a pro at the IRA's custodian shepherd you. Traditional brokerages won't allow it because they don't make commissions on the stock/mutual fund trades, but there are others like Advanta, Quest, and Provident that do. Great point Denise.
  1 Reply
Frank Lovaas
Real Estate Broker · Las Vegas, NV · Member since 2026 · 39 posts · 3 votes
8mo
Caleb, you are smart to pause before pulling money out of your IRA. Once you trigger taxes and penalties, you do not get a second chance to undo it.

Here is the simple way to look at it. The IRS allows up to ten thousand dollars from a Traditional IRA for a first time home purchase without the early withdrawal penalty. You still owe income tax on that amount, but you avoid the extra penalty. The key is that the money must be used toward buying or building your primary residence.

Now here is where your situation gets tricky. You are not just buying one property. You are buying a package with two multi family properties. From the IRS point of view, they do not care what you intend long term. They care how the funds are used and documented. If the withdrawal is clearly tied to the property you will live in as your primary residence, that is cleaner. If funds are blended across both properties with no clear separation, that can create confusion.

One practical approach is to structure the purchase so that your primary residence is clearly defined in the contract, settlement statement, and loan documents. In other words, make sure it is obvious on paper which property you are occupying and how much of your IRA funds went directly toward that purchase. Clean paperwork is your best friend here. The more simple and traceable the money trail, the better.

You may also want to talk with a CPA before moving the funds. Spending a few hundred dollars on good tax advice can save you thousands later. What is in it for you to slow down and structure this right is peace of mind. You get to house hack, build equity, and avoid writing a check to the IRS that you did not need to write.

Another angle to think about is whether you actually need to tap the IRA at all. There are ways to finance small multi family properties as an owner occupant with lower down payments, especially if you are living in one unit. Sometimes keeping retirement funds intact and using other financing options gives you more flexibility and less tax stress.

Have you already spoken with a lender about what down payment you would need on the property you plan to live in, separate from the second one?
2 Reply
Caleb Davis
OP
Investor · Chattanooga, TN · Member since 2026 · 20 posts · 15 votes
8mo
@Frank Lovaas we've got 14k between both of our IRA's which we just put in there this year for tax purposes knowing that we could pull it out for a first time home purchase(saved us on insurance reconsiliation). Outside of that we've only got about 7k but I've got a potential private investor that I could work with to get the rest of what I needed. Without the private investor we'd only be able to purchase the single property anyway so I'm just trying to figure out a creative solution to possibly aquire both of them as it is a pretty solid deal which are hard to come by in my area
0 Reply
Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
8mo
@Caleb Davis
not to sound negative, but it seems like you just don't have enough liquid. can you wait and save up more? there will still be hackable properties in a year or whenever you're ready.
just to be blunt, i don't see how borrowing money from a private investor for a primary, plus borrowing or liquidating retirement funds makes any sense. that's just stacking debt on debt on debt.
0 Reply
Caleb Davis
OP
Investor · Chattanooga, TN · Member since 2026 · 20 posts · 15 votes
8mo
@Nicholas L. fair point. Just finished Brandon Turner's book on investing with no/low money down and was feeling a bit trigger happy I guess. I just know I've analyzed every deal that's come across my local MLS and havnt seen anything close to this promising yet. That's FOMO for ya
1 Reply
Aaron ZimmermanBusiness Member
Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
8mo
Yeah I'd be inclined to save more. You're pretty thin on cash overall and you're asking for stress when something invariably breaks. Save more so you're in a better finacial position.
[email protected]
Brick House CPAs53 Reviews
Website View Page
0 Reply
Doug SmithPro Member
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
8mo
A lot of our capital partners use their SDIRAs for investment, but it sounds is if you're mixing personal and IRA funds for the purchase. Who is the custodian of the IRA? If it's a brokerage, they usually won't offer a lot of options. If it's a SDIRA custodian like Advanta IRA, Provident, or Quest, then you'll want to get with your account rep there to discuss options. It's easy to invest using an IRA, but it's also easy to mess it up and bust your IRA. As much experience as I and others on here have, sometimes the best answer is to not take advice from the computer screen and speak with an expert directly that specializes in IRAs...particularly what you can & can't do. Perhaps they can provide options and protect you from busting it.
0 Reply
Caleb Davis
OP
Investor · Chattanooga, TN · Member since 2026 · 20 posts · 15 votes
8mo
@Denise Supplee you are allowed to withdrawl from a traditional IRA for a first time home purchase without penalty, maximum of $10,000. That was my sole purpose of contributing to the IRA anyways, since it saved us on taxes this year because of health insurance.
0 Reply
- Denise SuppleeBusiness Member
  Realtor · Willow Grove, PA · Member since 2017 · 1k+ posts · 662 votes
  8mo
  Quote from @Caleb Davis:
  
  @Denise Supplee you are allowed to withdrawl from a traditional IRA for a first time home purchase without penalty, maximum of $10,000. That was my sole purpose of contributing to the IRA anyways, since it saved us on taxes this year because of health insurance.
  
  Hi @Caleb Davis Yes, I was referring more to borrowing rather than withdrawing. I meant to quote greg in my reply, as he was telling you to borrow.
  Spark Rental Co-Investing Club584 Reviews
  Website View Page
  0 Reply
Fulton Abraham Sanchez
CPA| New Clients Welcome| 50 States · Member since 2016 · 440 posts · 97 votes
8mo
@Caleb Davis, hi. Be cautious, the first-time homebuyer IRA exception only avoids the 10% penalty (not income tax) and must clearly apply to your primary residence.

If you are buying multiple properties in one package, it can be difficult to properly allocate the IRA funds, and poor structuring could trigger the full early withdrawal penalty.

Before proceeding, consider alternative financing or separating the transactions to avoid unnecessary tax consequences.
0 Reply
Mayo GilfurtPro Member
Real Estate Consultant · Connecticut Ct · Member since 2026 · 162 posts · 35 votes
8mo
Caleb — be very careful here. Traditional IRA funds generally can't be used for a property you personally occupy, even in a house-hack scenario. The IRS treats that as a prohibited transaction, regardless of how funds are "allocated" between units.
IRA money works best when it's completely arms-length (often via a self-directed IRA) and for properties you do not live in. I'd strongly recommend confirming with a CPA or SDIRA custodian before trying to structure this — the penalties for getting it wrong can be severe.
1 Reply
Jeffrey DixonPro Member
Irvine, CA · Member since 2014 · 94 posts · 44 votes
8mo
You cannot borrow from your own IRA. That is completely prohibited. You can borrow from a 401k plan. People often confuse the two.
0 Reply
Bo SmithPro Member
Hinton, WV · Member since 2026 · 1k+ posts · 375 votes
8mo
Self-directed IRA rollover could work - have it own one property directly, no penalties. Which property would be better for your house hack?
0 Reply
Stevan Stojakovic
Financial Advisor · FL · Member since 2024 · 486 posts · 122 votes
8mo
Even when something is technically “allowed,” the real question is whether it’s structurally smart.

Early-stage investors often optimize for acquisition instead of stability. Thin liquidity + retirement funds + private money can work… but it creates fragility. One surprise repair, vacancy hiccup, or expense spike suddenly becomes stressful instead of manageable.

FOMO is usually a bigger underwriting mistake than bad math.

A useful filter:
If this deal becomes harder than expected, does your life get tighter or stay stable?

House hacking is powerful, but survival margin matters more than squeezing into a “great deal.” Strong positions compound. Tight positions break.
Feel free to reach out if you need any help, Happy to connect and support you on your REI journey.
All the best,
Stevan
0 Reply
Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
5mo
There is a small amount that you can take out of an IRA penalty free if used towards the purchase of a personal residence.

best of luck
[email protected]917-280-8544
Basit Siddiqi CPA4.880 Reviews
View Page
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.