IRA funds as down payment

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Dmitriy Fomichenko
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
2y

@Brad Kanouse,

I believe this is a duplicate of this post:
https://www.biggerpockets.com/forums/311/topics/1210256-usin...

But regardless, here is my answer:

If you take a distribution from an IRA - it will be subject to taxes and penalties.

You can convert your IRA into a "Self-directed IRA" and have the IRA buy the property, in this case you are not the owner, the IRA is. You won't be able to use conventional financing and must use a non-recourse loan which typically require 40% down. Also be aware of Unrelated Business Income Tax (or UBIT) on leveraged real estate inside of an IRA.

Or better yet, since you are self-employed - go with a truly self-directed Solo 401k plan, which would be a much better option and will help you avoid the UBIT on this investment.

8Reply
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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    @Brad Kanouse

    no reason to do this.  interest rates and prices are high and people are contorting themselves into pretzels to try to buy.  if you don't have enough cash for a down payment... save up until you do

    5Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    2y

    @Brad Kanouse,

    I believe this is a duplicate of this post:
    https://www.biggerpockets.com/forums/311/topics/1210256-usin...

    But regardless, here is my answer:

    If you take a distribution from an IRA - it will be subject to taxes and penalties.

    You can convert your IRA into a "Self-directed IRA" and have the IRA buy the property, in this case you are not the owner, the IRA is. You won't be able to use conventional financing and must use a non-recourse loan which typically require 40% down. Also be aware of Unrelated Business Income Tax (or UBIT) on leveraged real estate inside of an IRA.

    Or better yet, since you are self-employed - go with a truly self-directed Solo 401k plan, which would be a much better option and will help you avoid the UBIT on this investment.

    8Reply
  • Arthur Flores
    New York, NY · Member since 2019 · 4 posts · 4 votes
    2y

    Yes, you can use part of your Traditional IRA funds for a down payment on a home through the First-Time Homebuyer Exception, which allows you to withdraw up to $10,000 without incurring the 10% early withdrawal penalty. Here are the key points:

    - First-time homebuyer: You qualify if you (and your spouse, if applicable) haven’t owned a home in the past two years.

    - Lifetime limit: The $10,000 is a lifetime limit, meaning you can only use it once for this purpose.

    - Taxes: While the 10% penalty is waived, the withdrawn amount will still be subject to regular income taxes.

    This can be a useful way to access funds for a home purchase, but keep in mind the tax implications and the potential impact on your retirement savings.

    3Reply
  • Brad KanousePro Member
    OP
    Real Estate Agent · Kansas City, MO · Member since 2019 · 34 posts · 19 votes
    2y

    Thank you all! This is great information. I appreciate you taking the time to respond.

    0Reply
  • Josh St LaurentBusiness Member
    Financial Advisor · Stateline, NV · Member since 2023 · 131 posts · 122 votes
    2y

    @Brad Kanouse

    You've gotten some good info so far from Arthur and Dmitriy and I wanted to add in some other things to think about as well.

    1. Self-Directed IRA (SDIRA): This is what @Dmitriy Fomichenko mentioned, and he's right, it could be a self-directed IRA or a solo 401k. You can roll your Traditional IRA into a Self-Directed IRA, which allows real estate investments. Just remember the property must be owned by the IRA, and you can't personally manage or use it—all income/expenses need to stay within the IRA.

    2. First-Time Homebuyer Program:  This is what @Arthur Flores was mentioning. If you're buying your first home (or haven't owned one in the last two years), you can withdraw up to $10,000 from your IRA penalty-free for a down payment. While this doesn’t apply to investment properties, it’s useful for primary residence or house-hacking strategies.

    3. 60-Day Rollover Rule: You can withdraw funds from your IRA and avoid penalties as long as you return the money within 60 days. It's a bit risky unless you're sure you can replace the funds, but it could work for short-term needs.

    4. Roll into a 401(k) and Take a Loan: If you have access to a 401(k) plan (Or can start one for a business you run), you could roll your IRA into that plan and take a loan against it. You can typically borrow up to 50% of the balance, up to $50,000, and repay yourself over time. This allows you to use the funds without triggering penalties or taxes, as long as you stick to the repayment schedule.

    These strategies all come with rules and limitations, so it’s a good idea to check with a tax advisor before moving forward.  Hope this helps, and let me know if I can answer any follow-up questions.

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    2Reply
  • Brad KanousePro Member
    OP
    Real Estate Agent · Kansas City, MO · Member since 2019 · 34 posts · 19 votes
    2y

    Thank you Josh! Great information and alot for me to think about.

    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    2y

    There is an amount that you can distribute from an IRA account to purchase a personal residence.

    You then might be able to turn the personal residence into an investment property.

    Best of luck.

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    0Reply
  • Michael Whitman
    CT · Member since 2024 · 21 posts · 15 votes
    2y
    Quote from @Josh St Laurent:

    @Brad Kanouse

    You've gotten some good info so far from Arthur and Dmitriy and I wanted to add in some other things to think about as well.

    1. Self-Directed IRA (SDIRA): This is what @Dmitriy Fomichenko mentioned, and he's right, it could be a self-directed IRA or a solo 401k. You can roll your Traditional IRA into a Self-Directed IRA, which allows real estate investments. Just remember the property must be owned by the IRA, and you can't personally manage or use it—all income/expenses need to stay within the IRA.

    2. First-Time Homebuyer Program:  This is what @Arthur Flores was mentioning. If you're buying your first home (or haven't owned one in the last two years), you can withdraw up to $10,000 from your IRA penalty-free for a down payment. While this doesn’t apply to investment properties, it’s useful for primary residence or house-hacking strategies.

    3. 60-Day Rollover Rule: You can withdraw funds from your IRA and avoid penalties as long as you return the money within 60 days. It's a bit risky unless you're sure you can replace the funds, but it could work for short-term needs.

    4. Roll into a 401(k) and Take a Loan: If you have access to a 401(k) plan (Or can start one for a business you run), you could roll your IRA into that plan and take a loan against it. You can typically borrow up to 50% of the balance, up to $50,000, and repay yourself over time. This allows you to use the funds without triggering penalties or taxes, as long as you stick to the repayment schedule.

    These strategies all come with rules and limitations, so it’s a good idea to check with a tax advisor before moving forward.  Hope this helps, and let me know if I can answer any follow-up questions.

     Good advice! The only thing I would add to this is if you leave the company, check with benefits as the loan from your 401k may be due in full. @Josh St Laurent would you know for sure?

    0Reply
    • Josh St LaurentBusiness Member
      Financial Advisor · Stateline, NV · Member since 2023 · 131 posts · 122 votes
      1y

      @Michael Whitman very good point and something to check on ahead of taking the loan. It is dependent on the company's 401k plan and you can usually find that info in their summary plan description (SPD) in the loans section. It'll range from - no problem link a bank account and continue payments to you have 30 days to pay back the loan or we'll default it. Worth checking.  

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      0Reply
  • Josh St LaurentBusiness Member
    Financial Advisor · Stateline, NV · Member since 2023 · 131 posts · 122 votes
    1y

    @Michael Whitman , it would totally depend on the company, but you make a great point. If you're able to download the SPD (Summary Plan Description), there will be a section pertaining to loans where you could find out and know ahead of time.

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    0Reply
  • Marco Bario
    Specialist · Frederick, MD · Member since 2017 · 475 posts · 454 votes
    1y
    Quote from @Dmitriy Fomichenko:

    @Brad Kanouse,

    I believe this is a duplicate of this post:
    https://www.biggerpockets.com/forums/311/topics/1210256-usin...

    But regardless, here is my answer:

    If you take a distribution from an IRA - it will be subject to taxes and penalties.

    You can convert your IRA into a "Self-directed IRA" and have the IRA buy the property, in this case you are not the owner, the IRA is. You won't be able to use conventional financing and must use a non-recourse loan which typically require 40% down. Also be aware of Unrelated Business Income Tax (or UBIT) on leveraged real estate inside of an IRA.

    Or better yet, since you are self-employed - go with a truly self-directed Solo 401k plan, which would be a much better option and will help you avoid the UBIT on this investment.


    And the Solo-K would enable you to borrow $50K from the retirement balance to use as you please.

    1Reply
  • Michael Ohara
    Investor · HI · Member since 2017 · 328 posts · 124 votes
    1y

    @Brad Kanouse I have an idea that doesn't involve drawing from your IRA. Sending a connection request.

    0Reply
  • Jonathan Chan
    Lender · Clermont, FL · Member since 2020 · 168 posts · 87 votes
    1y

    Solo 401K, pull personal loan out at 50K or half the balance of the account, whichever is less. The loan has a payback period of 5 years in equal installments. 

    1Reply
  • Neil Smith
    Member since 2021 · 35 posts · 16 votes
    1y

    @Dmitriy Fomichenko, follow-on question on this topic. Do you happen to know if existing traditional IRA funds from outside of a business that I own can be transferred inside of a Solo 401K plan?

    Thanks for the intelligent info. and contributions on this topic. 

    Neil

    1Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    1y

    @Neil Smith,

    Yes, Traditional IRA can be rolled into Solo 401K.

    1Reply
  • Bryan Stengel
    Real Estate Agent · Long Island · Member since 2018 · 88 posts · 38 votes
    1y

    Hi Brad, I believe a 401k loan may be helpful in terms of putting toward a down payment if needed.  The interest that it does accrue is money you don't lose, but rather it does go back into your investments.  However, I wouldn't say it is a complete tax-free strategy.  The money that you end up owing to repay the loan over the 5 year term is now post income tax money unlike how you traditionally are supplying your 401k with pre-tax money.  In other words, you will be taxed twice on the money that you do take out essentially.  You will also provide the whole amount if you plan on repaying the loan in full beforehand.  Money you put in and then when we hit 59 years or older, money that you end up withdrawing. 

    0Reply
  • Jacqueline Wright
    Lender · Nashville TN, USA · Member since 2024 · 142 posts · 30 votes
    1y

    Hi Brad,

    Yes, you can potentially use your Traditional IRA funds as part of a down payment for an investment property, but there are specific rules and considerations to avoid penalties.

    Loan from a Solo 401(k):

    If you have a Solo 401(k) instead of an IRA, you could borrow up to 50% of the account balance (up to $50,000).
    These funds can be used for a down payment, including on investment properties.

    0Reply
  • Jim HittBusiness Member
    Specialist · Asheville, NC · Member since 2018 · 76 posts · 6 votes
    1y

    Hi Brad,

    It looks like you had lots of great answers already, but I wanted to chime in with my two cents.

    Using Traditional IRA funds for a down payment on a single-family home (SFH) investment property can be tricky because the IRS has specific rules regarding retirement accounts and real estate investments. Directly withdrawing funds from a Traditional IRA before the age of 59½ typically results in taxes and penalties.

    However, one option to consider is using a self-directed IRA. Through this type of account, the IRA itself—not you personally—can purchase real estate as an investment. This means the property is owned by the IRA, and all income and expenses flow through it. Keep in mind that strict rules apply, such as avoiding self-dealing, prohibited transactions, and personally benefiting from the property.

    If you're not looking to involve your IRA directly in the property purchase, you could explore other creative financing strategies outside of your retirement account. Consulting a tax professional or financial advisor familiar with these rules would be a wise step before making any decisions.

    0Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    1y

    @Brad Kanouse Using Traditional IRA funds for an investment property typically incurs income tax and a 10% penalty if you’re under 59½, as investment properties don’t qualify for tax exemptions. However, alternatives like a Self-Directed IRA (SDIRA), a 60-Day Rollover, or a Roth IRA Conversion can help you avoid penalties.

    A SDIRA allows you to invest directly in real estate while maintaining the tax advantages of your IRA. The property must be entirely owned and managed within the IRA, with all income returning to it. Financing must be through non-recourse loans, and you must avoid prohibited transactions, such as personal use or self-dealing. This option is ideal for penalty-free investment but comes with added complexity and strict IRS rules.

    Alternatively, a 60-Day Rollover allows you to withdraw funds and redeposit them into an IRA within 60 days to avoid penalties, though it carries the risk of missing the deadline. A Roth IRA Conversion lets you convert funds, pay taxes upfront, and withdraw contributions tax- and penalty-free after 5 years, offering a longer-term solution.


    This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

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    0Reply
  • Jeffrey DixonPro Member
    Irvine, CA · Member since 2014 · 94 posts · 44 votes
    1y

    You can open a Self-Directed IRA and use the IRA funds to buy a house using a Non-recourse loan.

    1Reply
  • Havital Miltz
    Accountant · Accepting new clients from anywhere in the USA · Member since 2025 · 37 posts · 19 votes
    1y

    If you have a self directed IRA there are no tax consequences (but potentially various other issues), otherwise you will be subject to tax at the highest dollar rate as well as penalties if you are under 59.5

    0Reply
  • Jacqueline Wright
    Lender · Nashville TN, USA · Member since 2024 · 142 posts · 30 votes
    1y

    Yes! You can use IRA funds for a down payment on an investment property, but you need to structure it properly to avoid penalties. Here are a few ways to do it:

    1. Self-Directed IRA (SDIRA) – Best Option

    ✅ Roll over your Traditional IRA into a Self-Directed IRA (SDIRA)

    ✅ Buy the property directly through the SDIRA (you can't personally own it)

    ✅ All income & expenses must flow through the IRA—no personal benefit until withdrawal

    📌 Rules to Follow:

    You can’t use it as a personal residence (strictly investment)

    No "self-dealing" (you or family members can’t personally work on or live in the property)

    Loans must be non-recourse (no personal guarantees)

    2. IRA Loan (Non-Recourse Loan)

    Some lenders specialize in non-recourse loans for IRAs

    The IRA itself secures the loan, but expect a higher down payment (35-50%)

    3. 60-Day Rollover (Temporary Option)

    You can withdraw funds from your IRA tax-free for 60 days

    If you return the funds within 60 days, no penalties

    Risk: If you don’t replace the money, it’s taxed as income + 10% penalty (if under 59½)

    4. Roth IRA (If You Have One)

    You can withdraw contributions (not earnings) tax- and penalty-free at any time

    Great if you’ve contributed a lot over the years

    0Reply
  • Kaaren HallBusiness Member
    Financial Advisor · Irvine, CA · Member since 2011 · 113 posts · 63 votes
    1y

    I actually did this once, successfully. But let me explain. I was in the middle of a home purchase and my commission check was delayed. What I did was withdrawal funds from my IRA to make up for the difference. The reason this was successful was because once the commission check arrived I replaced the IRA funds (within 60-days). In this way it was not taxable to me.

    You cannot take out a proper "loan" from an IRA. You can take out a loan from a 401(k) - including the Solo 401(k) - or other employer plans. These loans are for the lesser of 50% of your account balance up to a maximum of $50,000.

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  • Tavon Diggs
    Financial Advisor · Philadelphia, PA · Member since 2014 · 24 posts · 2 votes
    1y

    @Brad Kanouse Have you considered utilizing Business credit cards? You can usually find them at 0% Interest anywhere from 9-24 months? I've seen some people go even longer at 0% if you know what you're doing? 

    0Reply
  • Jake YuskaitisBusiness Member
    Lender · New Jersey, USA · Member since 2022 · 254 posts · 67 votes
    1y
    Quote from @Brad Kanouse:

    Hello. Is there a way to utilize part of my Traditional IRA funds as a down payment on a SFH investment property without being penalized?


     as far as i know pretty sure it's fine. i'm not a tax expert though. i have had some borrowers do this in the past. some say it's too risky.

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