Should You Borrow from Your IRA to Buy a Home in Houston?
With broader mortgage options available for homebuyers these days, buying a home in Houston is now easier than ever. But most of the time, securing a down payment can be a bit of a challenge. IRAs of individual retirement accounts can be an indispensable source of cash for your home down payment. Your Roth IRA generally allows you to make a withdrawal any time for whatever reason you may have without worrying about taxes or penalties. But just because you can doesn’t mean you should and this guide will show you the rules on IRA withdrawals. Note that it only applies to Roth IRAs.
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Withdrawing from your IRA for a Home Purchase
There are rules about making a withdrawal on your Roth IRA account. Before thinking about tapping into your IRA, understand that your retirement money is split into two parts: one is your contribution, the other is the interest or the ROI for your contribution. According to the IRS:
- Contributions can be withdrawn anytime, for any reason without penalties or taxes
- Taking out your investment earnings are subject to different rules
That second rule complicates things because of the 5-year rule governing IRA withdrawals.
For Accounts that have been Active for Five Years or More:
- Account-holders can withdraw as much as $10,000 penalty- and tax-free to put up as a down payment for your first home. Note that the IRS identifies first-time homebuyers as account holder (or the spouse of one) who has not owned a primary residence over a two-year period.
- The five-year timetable starts with on January 1st of the year your first IRA contribution has been made.
- The same tax and penalty-free withdrawal can also be made for the home purchase of your parents, child, or grandchild.
- Withdrawing $10,000 for a home purchase will subject your contributions’ ROI to income taxes but not early distribution penalties.
- The withdrawable amount is a lifetime ceiling and it can’t go beyond
- The funds must be used 120 days after the withdrawal has been made
Are there any other Terms or Conditions?
A Roth IRA may be an easy source for immediate cash to purchase your home but it’s not the best one. You can only get it without taxes or penalties if the amount you contributed matches what you need for a down payment. In case it doesn’t you can add your total contributions and ROIs for a sum of $10,000 and withdraw it without worrying about taxes. It would only work that way if your Roth IRA is at least 5 years old and you qualify as a first-time homebuyer according to the rules.
In case you didn’t know yet, you can buy any single-family home of your choice in Houston with owner-financing. Here are some of the listed in Houston in the city which can help you narrow zero in on a home you would want to settle into. Get in touch with us if you want to buy a home with the help of a licensed Realtor.
Disclaimer: Shop Owner Finance/ TL Global is not a lender. We are a real estate training agency. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.