We want to help you make more informed decisions. Some links on this page — clearly marked — may take you to a partner website and may result in us earning a referral commission. For more information, see How We Make Money.
The IRS will let you do it, but that doesn’t mean it’s a good idea.
Such is the case when it comes to using an IRA to help pay for buying a home, according to financial experts.
If you’re younger than 59 ½, pulling money out of an IRA (which stands for individual retirement account) often comes with a 10% tax penalty. But the IRS makes an exception for certain homebuyers. This loophole might make it tempting to use retirement funds to finance a down payment or other upfront mortgage costs.
Here’s what to consider before you do that.
Should You Use Your IRA Funds to Buy a Home?
Whether you can use your IRA to buy a home and whether you should are two different questions. The financial experts we spoke with recommend leaving those funds where they are and looking for alternatives.
“For most people, using money from an IRA to pay for a home shouldn’t be your first option,” said Joe Calvetti, a CPA and the founder of Still Water Financial Planning, a financial planning firm.
Any money you withdraw from your IRA early won’t have the opportunity to grow and compound over time. As a result, you’ll have less money left to provide for a comfortable retirement, and a lower likelihood of achieving financial independence. Before using your IRA to buy a home, run the numbers to ensure you’re still on track to reach your retirement goals.
“Consider how much you have saved for retirement, and how that aligns with your goals,” Calvetti said. “And think about other sources of funding that may be available, and whether some extra money from a retirement account is really necessary.”
Pro Tip
Before using your IRA to buy a home, consider what other alternatives are available, including taking more time to save up or using a smaller down payment.
Buying Real Estate With an IRA
That being said, there do exist some incentives and exceptions for people who want to use IRA funds to buy a home. The right option for you depends on the type of IRA you have and what you plan to use the home for.
Homebuyer Exception
The IRS offers an exception that allows you to withdraw funds from your IRA …….
Source: https://time.com/nextadvisor/investing/use-ira-to-buy-a-home/