Thinking about cashing out $10k from my IRA for a downpayment

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Thinking about cashing out $10k from my IRA for a downpayment

Account Closed

Rental Property Investor · Boston, MA · Member since 2017 · 7 posts · 1 vote

Thinking about cashing out my IRA for a down payment on my first home.

I want to buy a 3 bedroom in greater Boston. Live in one bedroom and rent out the other two.

Thoughts?

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Joe SplitrockPro Member

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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

@Account Closed normally I don't support IRA withdrawals for investment properties, but I would in your case. You are able to avoid penalties with first time home buyer exclusion and you are living in the property, plus renting space for income. This seems pretty solid to me. What I don't think is smart is when people cash out their retirement, pay penalties and taxes for a non-owner occupied property. There is just too many stories of people loosing their life savings in a bad investment. Again, fine in your case as you are just getting established and an owner occupied house hack is a great first step.

Good luck!

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Chris Teti
Realtor · Southern NJ · Member since 2017 · 188 posts · 68 votes
6y
Hi Kaitlyn, I always think investing and house hacking like that is a good idea. I wish I did it when I was younger. I would recommend making sure the #'s work where you have an exit strategy for your IRA $$ within 6-12 months. Also, if you are interested I can help you get access to capital for your gap funding so you don't have to touch your retirement. Message me if you want to discuss it further.
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Michelle Reid
Rental Property Investor · MA · Member since 2019 · 85 posts · 37 votes
6y
Have you looked into buying it within your Ira to avoid the income tax on the IRA funds using a custodial IRA
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Charles Carillo
Rental Property Investor · North Palm Beach, FL · Member since 2018 · 2k+ posts · 1k+ votes
6y
@Account Closed
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Rental Property Investor · Boston, MA · Member since 2017 · 7 posts · 1 vote
6y
@Michelle Reid totally. That’s the way I would do it. “Cashing out” probably wasn’t the correct term.
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Account Closed
Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
6y
Originally posted by @Account Closed:
Thinking about cashing out my IRA for a down payment on my first home.
I want to buy a 3 bedroom in greater Boston. Live in one bedroom and rent out the other two.
Thoughts?

How much money for downpayment and closing do you actually need to buy this 3 bedroom? I ask because pulling 10k from a retirement account incurs a 10% penalty on top of the taxes owed. So 10,000 because 9,000 because 7,700. Is there anything else you can do to get the money besides your IRA? You could always get a second job for 6 months on nights and weekends to get the same amount of money without having to pay all the penalties. Again this is just me thinking out loud. You'd know your situation better than anyone where if anywhere you could get the needed money.
I think you have a great plan to house hack and build wealth thru other people paying for it.
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Account Closed
OP
Rental Property Investor · Boston, MA · Member since 2017 · 7 posts · 1 vote
6y
@Kaitlyn Pescatello I plan to avoid penalty:
https://www.nolo.com/legal-encyclopedia/using-ira-make-house-down-payment.html
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Michelle Reid
Rental Property Investor · MA · Member since 2019 · 85 posts · 37 votes
6y
Originally posted by @Account Closed:
@Michelle Reid totally. That’s the way I would do it. “Cashing out” probably wasn’t the correct term.

@Kaitlyn Pescatello, then Definitely!

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Marian Smith
Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
6y
@Kaitlyn Pescatello I think you can withdraw penalty free for first home. Pay income tax and uncomplicated. Also, my daughters friend is getting some kind of subsidy on her first home but I don’t know if it is us, state, city or what. At tax time. Her realtor told her about it. She earned below the area median income.
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Joe SplitrockPro Member
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
@Account Closed normally I don't support IRA withdrawals for investment properties, but I would in your case. You are able to avoid penalties with first time home buyer exclusion and you are living in the property, plus renting space for income. This seems pretty solid to me. What I don't think is smart is when people cash out their retirement, pay penalties and taxes for a non-owner occupied property. There is just too many stories of people loosing their life savings in a bad investment. Again, fine in your case as you are just getting established and an owner occupied house hack is a great first step.
Good luck!
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Calvin OzanickBusiness Member
Property Manager · Janesville, WI · Member since 2017 · 707 posts · 297 votes
6y
It sounds like a great idea. One thing I always recommend is making sure you have 10% of the purchase price saved in your reserves. This will give you the ability to protect yourself in the case of something bad happening to your new asset.
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Account Closed
OP
Rental Property Investor · Boston, MA · Member since 2017 · 7 posts · 1 vote
6y
@Calvin Ozanick good rule. Don’t have. Nice goal.
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Rental Property Investor · Boston, MA · Member since 2017 · 7 posts · 1 vote
6y
@Joe Splitrock thank you taking the time to way in! I appreciate your insight and encouragement!
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Account Closed
OP
Rental Property Investor · Boston, MA · Member since 2017 · 7 posts · 1 vote
6y
@Kaitlyn Pescatello weight* 🤦🏼‍♀️
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