Can I Buy a House With Money From My IRA?

Ask Me Anything

Ask Me Anything


From the Mailbag:

Dear Josh,

Thanks for writing this excellent blog.  I am one of the fortunate few sitting with 80% of my IRA in cash over the past 9 months or so.  My wife and I are house hunting and since we want nothing to do with the stock market or mutual funds right now, we were wondering if we could just use the cash in our IRA accounts toward the purchase of a new home (we’re renting now).

Thanks!

Elliot in NYC

Hi Elliot, lucky you to be in cash and thanks for reading The Reformed Broker.  Although I don’t give tax advice as a rule and I certainly don’t want to go all Suze Orman on this site, your question brings up an important point about IRA accounts and I think I can help you…

The answer to your question is, yes, you may take out money from your IRA to buy a house under certain conditions, but you probably shouldn’t…let me explain.  For the purpose of this post, I am going to assume that both you and your wife have Traditional IRA’s as opposed to Roth IRA’s, which could make things more complicated.

The tax penalty for early withdrawal from an IRA (meaning taking money out before you turn 59 1/2 years old) is 10% of the withdrawal amount you take.  You should avoid this penalty like the plague.

There are, however, several exceptions and exemptions to the early withdrawal tax.

These include college tuition costs for you or a dependent, the occurrence of an accident that causes a major disability, medical bills that exceed 7.5% of your adjusted gross income, or a court order stemming from divorce or bankruptcy mandating that payments be made which you are otherwise unable to (you can withdraw cash tax-free to pay off an IRS settlement or alimony and child support).

One other exception to the penalty is for when you are buying a home (having not owned one for at least two years prior) and you have never used IRA money for this purpose before.  The exemption is basically meant for first-time home buyers and under it, you may use up to $10,000 of the money you have in your IRA.  You can only do this once in your lifetime.

I don’t love the idea because even without the 10% early withdrawal penalty, you are still going to pay income taxes, just like you would at 70 1/2 when you start receiving your required minimum distribution, but your bracket now is way higher than it will be in retirement.  Let’s assume that at a minimum, you’re in the 28% federal tax bracket.  Compound this with the fact that you’re a New Yorker, so you’ve also got state and local taxes that are obscene.  When all is said and done, the $10,000 coming out of your IRA becomes more like $6,000 before you know it, and how much help is 6 grand when buying a house these days.

My feeling is that it’s not worth the paperwork to withdraw that amount if you can help it.  You’re probably better off letting it grow or throw off tax-deferred income for another few decades.  Besides, heaven forbid you actually have a hardship where you really need that money!  Keeping it in your IRA will give you a bit more peace of mind.

Good luck with the purchase of your new home.  For more detailed advice on the tax ramifications of early withdrawal exceptions, talk to a qualified accountant.

Joshua Morgan Brown
VP Investments/ Branch Manager NYC
Westrock Advisors, Inc.


Author’s Note:  Should you wish to discuss opening a new IRA account or rolling over an existing one, call me at 1 800 325 6195 for a confidential consultation or send an email to jbrown@westrockadvisors.com.

Tags: , , , , , , ,

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. joe commented on Aug 25

    Suppose you role your Traditional IRA into a self directed IRA ( Tax Free?), then you purchase. Would that work?

  2. joe commented on Aug 25

    Suppose you role your Traditional IRA into a self directed IRA ( Tax Free?), then you purchase. Would that work?

  3. joe commented on Aug 25

    Suppose you role your Traditional IRA into a self directed IRA ( Tax Free?), then you purchase. Would that work?

  4. sex commented on Sep 18

    … [Trackback]

    […] Information on that Topic: thereformedbroker.com/2009/02/06/can-i-buy-a-house-with-money-from-my-ira/ […]

  5. Cannabis Oil Shop commented on Oct 13

    … [Trackback]

    […] Find More on to that Topic: thereformedbroker.com/2009/02/06/can-i-buy-a-house-with-money-from-my-ira/ […]

  6. DevOps commented on Nov 19

    … [Trackback]

    […] Read More on on that Topic: thereformedbroker.com/2009/02/06/can-i-buy-a-house-with-money-from-my-ira/ […]

  7. repair service commented on Nov 27

    … [Trackback]

    […] Read More here on that Topic: thereformedbroker.com/2009/02/06/can-i-buy-a-house-with-money-from-my-ira/ […]

  8. 주소찾기 commented on Nov 29

    … [Trackback]

    […] Read More to that Topic: thereformedbroker.com/2009/02/06/can-i-buy-a-house-with-money-from-my-ira/ […]

  9. tangerine savings account commented on Nov 29

    … [Trackback]

    […] Find More Information here on that Topic: thereformedbroker.com/2009/02/06/can-i-buy-a-house-with-money-from-my-ira/ […]

  10. scotia online banking commented on Dec 03

    … [Trackback]

    […] Here you will find 45916 additional Information on that Topic: thereformedbroker.com/2009/02/06/can-i-buy-a-house-with-money-from-my-ira/ […]

  11. td bank easyweb commented on Dec 13

    … [Trackback]

    […] Information on that Topic: thereformedbroker.com/2009/02/06/can-i-buy-a-house-with-money-from-my-ira/ […]

  12. rolex replika commented on Jan 14

    … [Trackback]

    […] Find More on that Topic: thereformedbroker.com/2009/02/06/can-i-buy-a-house-with-money-from-my-ira/ […]

  13. Digital transformation commented on Jan 16

    … [Trackback]

    […] Find More on that Topic: thereformedbroker.com/2009/02/06/can-i-buy-a-house-with-money-from-my-ira/ […]

  14. replique rolex commented on Jan 20

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2009/02/06/can-i-buy-a-house-with-money-from-my-ira/ […]