Using your IRA to Buy your Dream Home

Real Estate has been and continues to be one of the most popular investment options held through a Self-Directed IRA account. Some investors purchase homes to rehab for a quick profit while others take on real estate investments long term by purchasing single or multi-homes with the hopes to add value to their IRA’s with the rental income that is being generated along with the expected appreciation of the property. Any asset owned within an IRA has to be for investment purposes only and can have no personal use or benefit.  Having said that, as investors near closer to their retirement, many have become wondering is there any way this IRA owned property into my personal residence? With a little bit of planning and understanding some basic IRA concepts, the answer is yes! You can buy the home of your dreams with your IRA and ultimately convert that into your personal Dream Home.

If this is something you may be thinking of doing, the most important thing is having a realistic plan. IRA assets generally cannot be touched prior to age 59 ½ without a 10% early distribution penalty in addition to any applicable income tax in the case of a Traditional IRA. What is even better is if you hold a property in a Roth account that has been established for 5 years or more and you are above age 59 ½, you will pay no tax at all. The key is to make sure you have a realistic timeframe of when you may want to move into this property and ensure you have attained that magic age of 59 ½. Let’s say you are 58 years old now, no plans to retire until you are at least 65 and have found your perfect home to spend your retirement years in. You would be able to place funds in a Self-Directed IRA, purchase the property at age 58 and ultimately take that property out of the IRA and make it your personal residence. In the meantime, while the property is held in the IRA, in this case for seven years, you can rent the property out and all rental income comes directly back into your IRA tax deferred or tax free allowing you to build for a more comfortable retirement.

Now that we see it is possible to do this, there are steps that need to be taken to move the property from the IRA to you personally. First, you will want to have the property assessed for its current market value and have a deed prepared conveying the property from the IRA to you personally. This documentation would be provided to your IRA administrator along with a distribution form for processing. Once complete, the property is now owned by you personally to use as your residence. It is important to know that the assessed value of the property will be reported to the IRS as an IRA distribution. Again, in the case of a Roth IRA this property is now yours tax and penalty free!

Theresa Knower, CISP, CES
Chief Operating Officer
AdvantaIRA Trust, LLC
1031 Tax Free Strategies, LLC
1520 Royal Palm Sq. Blvd. #320
Fort Myers, FL 33919
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