Use IRA money to buy a home
My friend is 55 and is renting now, transfer 401k to IRA and lost money from stock market, so she is thinking about using the IRA money to purchase a home, is this really a good move? and is there a way to avoid penalty? Is there a talk about this in Obama’s policy?
Permalink Submitted by mk foss on Thu, 2009-02-12 21:15
There is no penalty when up to $10,000 is withdrawn from an IRA for a first time home purchase. She should qualify. The withdrawal is taxable but the 10% penalty is waived.
I’m not aware of any changes to this rule based on current legislation.
Permalink Submitted by barbara v on Thu, 2009-02-12 21:34
Thanks, but she was looking for 80% of her IRA, which can be around 100K to purchase a home. I once heard Obama’s team talked about helping people buying home using retirement fund without penalty.
Permalink Submitted by Joseph Arsenault on Thu, 2009-02-12 21:40
You asked if this is a good move..
From a tax planning perspective…
If you use IRA money to buy a home, your forced to pay income tax on tax sheltered money that can continued to be deferred and your eliminating deductible mortgage interest potential for future income tax returns.. You may also be subject to the 10% penalty if you dont qualify as a first time homebuyer or if you take more than 10k out.
Unless its strictly a cash flow strategy most opinions would not say its a good move..
Permalink Submitted by Alan Spross on Thu, 2009-02-12 21:49
In addition, the final provisions with respect to homebuyer credits in the pending stimulus legislation should be considered. The tax credit may offset some or all of the disadvantages of using IRA money.
There are major differences between the House and Senate plans, and the most generous provisions are being scaled back. Just be sure to consider the final provisions when the bill becomes law, and how they might benefit you.