Is Buying a Home with My Retirement Funds a Good Idea?

Buying a home with retirement savings can be done with planning.

You have found a home you love.

It is your dream home.

And you followed the "three rules" of real estate: location, location, location.

It has the perfect location.

It has all the right amenities and layout to allow you to safely age in place, too.

You want to purchase it.

Now.

According to a recent Forbes article titled “Should You Use Your Retirement Savings to Buy a Home?,” you may be able to use your retirement funds in your down payment.

If you use a traditional IRA, you can withdrawal up to a $10,000 lifetime limit for a first time home purchase without being penalized for early withdrawals.

What if you have purchased a home before?

If you have not lived in a home you owned in the past two years, you are considered a first-time homes buyer by the IRS.

No, really.

What if you are married?

You and your spouse both must satisfy this requirement.

This can impact second marriages, especially later in life.

Note: you will be still be subject to income taxes on any funds withdrawn.

What if you have a Roth IRA?

If you have had this account for at least five years, you could use this $10,000 withdrawal exempt from income taxes and penalties.

If you have owned this account for fewer than five years, you may be taxed on all or a portion of the amount withdrawn.

This Roth IRA homeowner exception applies after you have withdrawn all your contributions.

What happens if your retirement account is provided through your employer?

These rules do not apply.

You must qualify for a hardship withdrawal if you take out money from a 401(k), are not yet age 59½ and still working.

Buying a home does qualify, but you will be penalized and you will be taxed on withdrawals.

Do you want to avoid a penalty?

The 401(k) loan provision may be an option.

You will also need to prove that you have closed on the home.

If you want to use your home to provide equity for supplemental retirement income, you may lose your home if you cannot make loan payments.

Obviously, this is a risk.

You should seek the help of a professional financial advisor before you purchase the home.

He or she will help you determine the best course of action for reaching home owning and retirement goals.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Forbes (May 20, 2018) “Should You Use Your Retirement Savings to Buy a Home?