| Hi Taylor
- I'm looking into buying my first house and understand I can use
IRA funds for the purchase without being penalized. How hard or easy
is it to make this withdrawal? - Spencer
Hi Spencer - How mad will you be if I say it's both hard and easy?
In theory, as long as you meet the requirements, you'll get a check
for the requested amount and the IRS will leave you and your money
alone. There are a few details, however, that make it all a little
trickier than that.
limit is $10,000. If you had been thinking you could buy an
entire house using what's in your IRA, I'm sorry to be the bearer
of bad news. The amount you can withdraw caps at $10,000, meaning
you really should only use these funds as a sweetener for your
mortgage terms. If you're in a position where you really need
that $10,000 to make buying a house feasible, I wonder how long
it will take you to recoup the losses from your retirement fund.
While a house should go up in value, it's mostly just a money
drain while it's your primary residence. Make sure you put a lot
of thought into where that $10K actually has the most value.
2. You have to spend it within 120 days. Buying a house, especially
when it's your first, can take a lot longer than expected. 120
days might feel like a lot of time, but it's gone in the blink
of an eye when real estate is involved, and it's gone even faster
if something falls through and you have to start over. If something
goes wrong and you don't have proof of purchase within the allotted
time, you run the risk of IRS backlash and a potential penalty.
Imagine paying the penalty on an IRA withdrawal that you made
exclusively because you don't have to pay a penalty. The thought
makes me shudder.
3. Are you sure? Retirement money is not something to be
messed with. If you don't have it when you need it, there's no
quick fix. One of the biggest problems with using your IRA savings
is the mental acknowledgment that the money can be used. There
will always be bills to pay and things to buy, and the only thing
keeping you from putting retirement funds toward other needs is
understanding that you have to save that money for later. If you
start bending the rules, even with the best intentions, you could
head down a path that puts you in a tough spot later on.
The IRS allows
for a few exceptions as a means of helping people in dire situations.
If you head to GoFarWithKovar.com,
you can see a piece I wrote about most of the other penalty-free
options. As you think about what to do, remember that the rules
exist to help you out when you are in a bind, so just be careful
not to take action unless it's truly necessary. Good luck, Spencer!
Information presented is for educational purposes only and is not
an offer or solicitation for the sale or purchase of any specific
securities, investments, or investment strategies. Investments involve
risk and, unless otherwise stated, are not guaranteed. Be sure to
first consult with a qualified financial adviser and/or tax professional
before implementing any strategy discussed herein. To submit a question
to be answered in this column, please send it via email to Question@GoFarWithKovar.com,
or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.