How to Drain the MOST OUT of my IRA for Real Estate?

Question

2nd post here.

Just getting started. But know what I want. So I have a pending loan with fund and grow I expect anywhere between 50k - 150k and I have 18k to my name in an IRA, a ROTH IRA. But it wasn't always a ROTH about 3-6k of that have previously we're switched from a TRADITIONAL and a SEP...but could not tell you why I did that, didn't (and still don't) know what I'm doing. All I do know is that I want to know how to get the most money out of that IRA least amount of penalties and taxes and purchase my FIRST HOME but I want a fixer upper because I will attempt to use the BRRRR method is my niche I'm going to focus on I think. So how do I drain the most my IRA for my first time home purchase? Please and thanks

Bernard Reisz · Answer

@Steven DAmbra

Broadly speaking, there are 2 approaches available - (1) withdraw the funds from retirement accounts, eat the penalty, pay taxes on all the earnings (which could be tax-free in a Roth), but have complete freedom to use the money any way you'd like or (2) keep the funds inside of tax advantaged accounts, no penalties, potential for tax-free earnings, but you'd have to work within the framework of retirement account rules.

Option 2 presents many possibilities. A first step is determining whether you qualify for a 401kCheckbook or IRA-Checkbook. Checkbook retirement accounts, especially 401kCheckbooks, can give you the flexibility maintain all the tax advantages of retirement accounts while still investing in real estate - equity or debt. With the 401kCheckbook you could even pull a portion of the funds out of the retirement account, as a loan to yourself, without any adverse tax consequences. Bear in mind that Roth IRAs can't be rolled over to a 401k. As @Henri Meli pointed out, there are rules that you must be aware of.

Once you're familiar with these accounts, you can use the structure to raise capital from others that would fund your deals with the money they've got in retirement accounts.

For some more info check out: 401kCheckbook for Real Estate and Private Lending IRA. We've each got our own financial objectives and profile, so either of the 2 options may be best for you.

Account Closed · Answer

My dumb-guy understanding about investing from funds in an SDIRA is that you personally cannot profit/benefit from it in any way, until you hit retirement age.

You can buy real estate with the SDIRA, but everything it generates has to stay within the SDIRA.  No "self-dealing" and no dealing with family members or close associates.  You can't use the property either.

For the smarter folks: is that basically correct? That's my quick understanding.. I have been considering using my SDIRA also.

Edward B. · Answer

@Nicky Reader, you are 100% correct. This is a strategy for building wealth, it will not provide for you along the way.

Henri Meli · Answer

@Steven DAmbra Using money from an IRA to invest really requires lots of education, else you might end up with a lot of surprises for yourself and questions from the IRS. Therefore, it is very important that you educate yourself to the max before going down that route. I'm not saying it is impossible, all I'm saying is take the time to educate yourself well.

1. Taking the money out has lots of tax consequences. Make sure you account for the taxes to be paid, if you go that route.

2. Using SDIRA also has lots of complexity and limitations and there is a lot of pitfalls, which usually require the assistance of experts. What you can purchase within the SDIRA, what loans and which lenders within your SDIRA can do and the types of loans you can get, the interest rates, the types of assets ...etc.

Proceed with caution ...

Good Luck!!!

Yonah Weiss · Answer

@Bernard Reisz might be able to help you with that one...?

Steven DAmbra · Answer

ok so I've made up my mind about this, I'm 28 I'm having my first born child in 2 months, and I need income now, not when i'm 60.  My retirement can be my properties i own free and clear that's not a problem.. thanks for all this input I'm really feeling this website

George Blower · Answer

@Steven DAmbra

While the IRS does allow penalty-free withdrawals (non-payment of the 10% early distribution penalty if you are under age 59 1/2)  from IRAs for a limited amount of $10,000, this rule only applies to first-time home-buyers.

The first-time home-buyers exception is not afforded to investment real estate.

Edward B. · Answer

@Steven DAmbra, you don't have to just invest in the stock market from your IRA, you can invest in anything except insurance and collectibles, including real estate. If you are dead set on this course of action then you take the money out and pay whatever taxes and penalties are associated with it. Then you pay taxes on every dollar of profit or gain for the rest of your life.

Taxes are the single biggest expense and obstacle to wealth generation that any of us will pay over the course of our lives. Your opportunities to invest tax deffered/free are extremely limited by the federal government and once you pass up those opportunities you can never go back and make up the difference. My advice is to not look for ways to get your money out of these accounts but to look for ways to get more money in. And learn how to invest within these accounts. That will do much more for long term and generational wealth building than real estate alone.

Steven DAmbra · Answer

That's fine @Edward but I've listened to enough podcasts from bigger pockets and Morris invest to realize that the stock market is not the greatest thing in the world. So again I wanna take all (if not most) of my IR, A money OUT of IRAs and into Real Estate. How do I do it? I know I can take up to 10k out my first home penalty free that's what I intend to do. But I need the rest, (another 10k)

How to Drain the MOST OUT of my IRA for Real Estate?

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