purchasing a new home
One of my clients is purcahasing a new home. She has $60,000 in her IRA. Can she invest this money as a down payment in her home as if she were purchasing real estate in her IRA.
Thanks for your expertise.
Dan Mac Donald, [email protected]
Permalink Submitted by Clyde Wolf on Wed, 2008-08-27 17:40
McDonald,
It sounds like this new home will be her personal residence, and not investment property.
She can not use her IRA to buy property for personal use now or in the future. She cannot user her IRA to buy property for her spouse, IRA beneficiary, ancestor or lineal descendant, or the spouse of a lineal descendant.
Such transactions are considered Prohibited Transactions for an IRA.
Engaging in a Prohibited Transaction would cause the IRA to stop being a IRA as of January 1 of the year of the transaction.
Permalink Submitted by Alan Spross on Thu, 2008-08-28 01:52
What she could do is take a taxable distribution from the traditional IRA, or possibly non taxable if it was a Roth IRA. For a qualifying first home purchase up to 10,000 lifetime is exempt from the early withdrawal penalty, or could be a qualified tax free Roth distribution if the Roth owner has met the 5 year holding period. A spouse also receives the 10,000 benefit if a joint owner in the home.
Some new home buyers may be able to combine the IRA withdrawal benefits with the new tax credit in order to afford the down payment.
As far as totally draining the owner’s only IRA account to buy the home, the drawbacks of this should be seriously considered.