Rental Property Investor · Melbourne, FL · Member since 2019 · 25 posts · 25 votes
Hello BP, I will be finishing graduate school in about a year and am starting to look at buying my first home. I plan on house hacking a small multifamily home. I have a good chunk of money saved up, and want to know if I can supplement this saved up money with the money from my Roth IRA and 401k (from a company I interned at one summer but will no longer be working for.) as a down payment for this small multifamily home. I have about $2000 combined in the Roth IRA and 401k that I want to utilize.
If I can use this “retirement money” to supplement the down payment, are there any taxes, fees, or legalities that I should be aware of, and can I even do this in general?
Contractor · Pottstown, PA · Member since 2018 · 216 posts · 160 votes
7y
Hi Taylor!
I am not a CPA, and I don't play one on the internet, so this is just my opinion.
That said, with a ROTH IRA, you are allowed to withdraw 100% of your contributions (but not gains made on those contributions). I believe the account must have been open for 5 years to do that without a penalty, so it depends on how old the account is.
Also with the IRA, you're allowed to take a distribution of up to $10k for a first time home purchase. I did this to buy the house I'm living in now, which is a duplex house hack for me.
The 401k is a bit more strict. You may be able to take a loan out on it. Maximum allowable loan amounts are up to $50,000 or 50% of the value of the account - whichever is less. Then you're required to pay yourself back, with interest, within 5 years. This is subject to approval from whoever is sponsoring the 401k.
If you no longer work at the job that provided you with the 401k, you can transfer it into a "roll over IRA" which takes all the funds from the 401k and just makes them into a new account, governed by new rules - so instead of being subject to the stricter 401k rules, you can use the more lenient IRA rules to maximize your allowable distributions.
The guy who helps me through the legalities of all this is Steven Hamilton II, who I met on BP. He's a great accountant and can help you through this stuff if you look up his profile.