With the stock market taking a crap, yet again, why not use what is left in there to earn a great return in real estate? There are two ways to take advantage of your retirement now, rather than wait for it to recover what it lost, hopefully by the time you retire! This all depends on how much is left in there!
The most common way to use your IRA to purchase real estate is to take a penalty-free withdrawal. Only first-time homebuyers are eligible, however did you know what the IRS definition of a first-time home buyer is: “any individual (and his or her spouse, if married) who had no present ownership interest in a main home during the 2-year period ending on the date the individual acquires the main home”. Confusing?? In layman’s terms, did you own a property over the last two years? If not, you are eligible to be a first-time homebuyer, in the eyes of the IRS.
Now that we established that, you can use up to $10,000 in IRA funds toward the purchase of your first home. If you’re married, and you and your spouse are both first-time buyers, you each can pull from retirement accounts, giving you $20,000 in cash. You can even share your IRA wealth. The IRS says the first-time homebuyer using your IRA funds for a down payment can be you, your spouse, one of your children, a grandchild or a parent. “Hey mom and dad, have I told you lately how much I love you!”
Be careful not to take out your money too soon. You must use the IRA funds within 120 days of withdrawal to pay qualified acquisition costs. This includes the costs of buying, building or rebuilding a home, along with any usual settlement, financing or closing costs.
Now if you have a Roth IRA, a retirement vehicle that I actually support other than real estate, the $10,000 you take out for your first home is a qualified distribution as long as you’ve had your Roth account for five years. This means you can take out your retirement money without penalty, and because Roth earnings are tax-free, you’ll have no IRS bill either.
The second way to purchase real estate is actually within your IRA, otherwise known as a self-directed IRA. You can set-up a self-directed IRA by transferring the funds in your current IRA, 401k rollover, or other qualified retirement plan to a new custodian. The custodian then set up a new entity which you manage. The flow chart below should clear this up a bit….Again, I am not a financial planner, CPA, tax man or anything close to these very intelligent people. However, why are these incredible tools never suggested to you? In my opinion, everyone is on the same train, on the same tracks, heading to the same retirement destination. Thinking outside of the box when it comes to retirement is a no-no in the professional world. However, I am sure you could have used a positive cash flow from that money instead of losing 5-10% of it! For more information, get in touch with me and I will be happy to sit down with you.