How to Borrow for a Down Payment From a Self-Directed IRA
If you are in the market to buy a home, take advantage of the tax law that allows you to withdraw money from a self-directed IRA. The IRS waives the early withdrawal penalty. In a self-directed IRA, the account owner makes investment decisions and invests on behalf of the retirement plan. In a traditional IRA, the account owner directs a custodian to make the investment decisions. A self-directed IRA also allows for investment in nontraditional assets. You can withdraw up to $10,000 from a self-directed IRA if you're a first-time home buyer or $20,000 for married couples with separate accounts.
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Instructions
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Request a rollover form from your self-directed IRA by completing a withdrawal form from the plan custodian who manages your account. Inform the representative that you wish to withdraw money from your self-directed IRA to use as a down payment on a home.
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Fill out the withdrawal form. You will need your account information, address and Social Security number. Indicate whether you want the money paid by check or directly deposited into your bank account.
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Report the loan amount to the IRS when it's time to file your taxes. Even though the IRS waives the early withdrawal penalty, you might owe tax on the money you borrowed from your self-directed IRA.
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Tips & Warnings
You have a 120-day limit upon withdrawing money from your self-directed IRA for a down payment. That means you must purchase the house within that period. In addition, your down payment must be for your principal residence and not a vacation or second home.
