Thinking about cashing out $10k from my IRA for a downpayment

13 Replies

Thinking about cashing out my IRA for a down payment on my first home.

I want to buy a 3 bedroom in greater Boston. Live in one bedroom and rent out the other two.

Thoughts?

Hi Kaitlyn, I always think investing and house hacking like that is a good idea. I wish I did it when I was younger. I would recommend making sure the #'s work where you have an exit strategy for your IRA $$ within 6-12 months. Also, if you are interested I can help you get access to capital for your gap funding so you don't have to touch your retirement. Message me if you want to discuss it further.

Originally posted by @Kaitlyn Pescatello:

Thinking about cashing out my IRA for a down payment on my first home.

I want to buy a 3 bedroom in greater Boston. Live in one bedroom and rent out the other two.

Thoughts?

How much money for downpayment and closing do you actually need to buy this 3 bedroom? I ask because pulling 10k from a retirement account incurs a 10% penalty on top of the taxes owed. So 10,000 because 9,000 because 7,700. Is there anything else you can do to get the money besides your IRA? You could always get a second job for 6 months on nights and weekends to get the same amount of money without having to pay all the penalties. Again this is just me thinking out loud. You'd know your situation better than anyone where if anywhere you could get the needed money.

I think you have a great plan to house hack and build wealth thru other people paying for it.  

Originally posted by @Kaitlyn Pescatello:

@Michelle Reid totally. That’s the way I would do it. “Cashing out” probably wasn’t the correct term.

@Kaitlyn Pescatello, then Definitely!

 

@Kaitlyn Pescatello I think you can withdraw penalty free for first home. Pay income tax and uncomplicated. Also, my daughters friend is getting some kind of subsidy on her first home but I don’t know if it is us, state, city or what. At tax time. Her realtor told her about it. She earned below the area median income.

@Account Closed normally I don't support IRA withdrawals for investment properties, but I would in your case. You are able to avoid penalties with first time home buyer exclusion and you are living in the property, plus renting space for income. This seems pretty solid to me. What I don't think is smart is when people cash out their retirement, pay penalties and taxes for a non-owner occupied property. There is just too many stories of people loosing their life savings in a bad investment. Again, fine in your case as you are just getting established and an owner occupied house hack is a great first step.

Good luck!

It sounds like a great idea. One thing I always recommend is making sure you have 10% of the purchase price saved in your reserves. This will give you the ability to protect yourself in the case of something bad happening to your new asset.