Withdrawing money from a mutual fund to purchase real estate.

7 Replies

I hope this is the correct forum to post this question. 

I currently have a mutual fund account with around 25k that I would like to use towards the purchase on an investment property. Long story short, my parents set this account up for me when I was born and they have added to it my entire life. Now that I have graduated college, the account and money has been turned over to me. As of now, the only option I know of is to sell the funds, withdraw the money, and then pay taxes on all of that money. Then use what is left towards the purchase of a property.

I was wondering if anyone on BP knew of any other options that would have some tax advantages? I plan on talking more with my financial adviser but thought I would do a little research beforehand. 

Hello Blake,

You might want to look at rolling your mutual fund into a self-directed IRA. A self -directed IRA will allow you to invest in real estate, precious metals, stocks, bonds or whatever you choose. You will also avoid the tax hit. Consult with your financial advisor, he/she should be able to give you more information.

Good luck!

@Blake McBee

you did not give any indication what type of account is it. Mutual funds is the type of investment where the funds are invested, but not the type of account. 

Is it an IRA? Traditional or Roth? (it would have been smart for your folks to do a Roth IRA for you, I opened Roth IRA for my 8-year old daughter who works for me and will continue to contribute so the funds can grow tax-free). Or is it personal (non-qualified) account? Or perhaps it is educational account where funds can only be used to pay for qualified educational expense (it is common for parents to have such accounts for children too).

Before I can give you any feedback or recommendation you need to provide little more details. 

Dmitriy Fomichenko, Broker
(949) 228-9393

@Dmitriy Fomichenko

I'm not 100% sure what kind of account it is off the top of my head. I need to ask him next time we meet. I do know it is NOT any type of IRA account. Judging by your description of the education account it is not that either. I was unaware of this account until recently so I am still learning more about it and weighing my options. Last time I talked to adviser the brief description he gave me was the account is now in my name and the money is currently invested in "XYZ" mutual fund. I mentioned to him that I may want to sell off the funds and use the cash for real estate in the future. He said this would not be problem and that I would just have to pay the capital gain taxes whenever I transferred the money to my personal account. I don't know if this help at all. In the meantime, I will figure the actual account type.

Thanks for the responses. I am hoping to find out a few options before we meet next so I can do some research on my options rather than walking in to his office blindly. 

@Blake McBee

It SOUNDS like this is merely a brokerage account. If so, you would pay capital gains on the distribution when you sell the fund. Good news is that if this has been funded since you were a kid, it seems likely you'd pay mostly (if not solely) long term capital gains, depending on how long the current fund has been held.

I'm not aware of any way to transfer in-kind from a non-IRA brokerage to an IRA account. That said, I'm not a financial planner and I have no idea if there is some other way to defer taxes on this account. It might be a good idea to find someone in the industry to provide some guidance.

720-334-8741

I just secured a LOC against assets in a brokerage account. This way will allow you to benefit both from the money remaining in the mutual fund and the use of a large portion of the value. In my case I was able to borrow against 70% of the assets. Ask your bank and see what they have to say.

It may be an education savings accounts, also know as a Coverdell IRA.

A Coverdell education savings account (ESA) is just that—a savings arrangement in which contributions are invested for the purpose of funding an individual’s education.

Only ESA assets may be rolled over to ESAs (IRC Sec. 530(d)(5)). Individuals may not roll over ESA assets to an IRA and vice versa.

Once the child turns age 30, the entire balance in the ESA must be distributed to the child within 30 days if not rolled over or transferred to another eligible family member’s ESA.

Resource:  

http://www.irs.gov/publications/p970/ch07.html

@Blake McBee

what you have is probably non-qualified personal account. Possibly it is UGMA account (Uniform Gift to Minors Act). The Uniform Gift to Minors Act (UGMA) was enacted a simple way for a minor to own securities without requiring the services of an attorney to prepare trust documents or the court appointment of a trustee. And now your folks just passed it on to you. But regardless, this is non-qualified, taxable account. You (or your parents) have been paying taxes on any dividends income and contributions where taxed. If you sell now you will pay taxes on the gains only. You SHOULD NOT be paying taxes on ALL of the money. You can certainly cash out this type of account and use funds for REI.

Disclaimer: this is not a tax or legal advice. 

Dmitriy Fomichenko, Broker
(949) 228-9393

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