How can I access money tied up in IRA's and other funds?

7 Replies

Hello all. Next year I want to begin the process of buying my first multifamily unit, which I want to live in one unit. But all my money is in IRA's and other money funds, and I think I'm going to need to tap into those accounts to get started. The question is, how do I do this? I hear the words, "Self Directed IRA." used a lot on BP, as a way to purchase your property, but from reading about the rules of using this method to buy real estate, "The IRS prohibits certain actions. For example, neither the IRA holder nor any disqualified persons to that plan may live in or vacation in the property." That sounds like I would not be able to house hack. So I'm asking the experienced investors of BP, how do I use the money in my IRA's to begin investing? Do I cash out a portion of my IRA's and pay the penalties and the taxes? Are there other ways of accessing these funds? Thanks for your time. Will

Will, you can setup and use self-directed IRA to invest in real estate, but the IRS rules prohibit you from receiving any personal benefits from such investment (living in the property) or providing any services (doing the work yourself). It has to be used strictly for investment without your personal involvement, so you are correct, house hacking strategy would not work with SD IRA.

If you are eligible for a Solo 401k plan you can rollover funds there and take a personal loan form it (limited to $50K), which can be in turn use to make personal investment. 

@Will Foster

House hacking is definitely not an option with a self-directed IRA. Such plans are purely a way to diversify your tax-sheltered retirement savings into non-conventional assets such as real estate, private mortgages, Bitcoin, etc. All activities of the plan must be entirely at arm's length and exclusively for the benefit of the plan, just like a conventional IRA in the stock market.

A Solo 401k participant loan would potentially be an option.  Not always the highest and best use of tax-sheltered retirement funds, but an ends to a means that can make sense.   

A 72t distribution exception known as a Substantially Equal Periodic Payment or SEPP is also an option.  This allows for you and your CPA to design a plan of drawing down the account a certain fixed amount over a several year period.  The distributions are still considered taxable, but the 10% penalty for early distribution is waived.

You can also take a distribution from an IRA for the purpose of purchasing a primary residence and have the 10% penalty waived.

I recommend you discuss the above options with your CPA.

@Will Foster ,

@Brian Eastman is correct in saying you can withdraw money from your IRA penalty-free to purchase a home, but there are 2 key points to understand:

1. You must be a first-time home buyer. "First-time" is considered to include those who haven't owned a home in the past 2 years. So, if you owned a home 5 years ago, sold it, and haven't owned one since, you're considered a "first-time" buyer.

2. You're only allowed to withdraw up to $10,000 penalty-free... for life. So, if you use it once, it's gone. Keep in mind...although it's penalty-free, it's still taxable.

This is all assuming you have a Traditional IRA.

The rules are very different for a Roth IRA: contributions are allowed to be withdrawn at any time, in any amount, penalty- and tax-free since you already paid tax on that money. If you wanted to withdraw more than your contributions, you can pull from your earnings, in which case the above exception will apply (again, up to $10,000).

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