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Borrowing from IRA
Old 02-26-2020, 04:02 PM   #1
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Borrowing from IRA

I'm in the process of buying a vacation home.



I was vacationing in the area that I purchased this town home, and I was trying to expedite the closing date. I didn't want to travel home, and then come back.


With interest rates low, I decided to take out a mortgage loan, and I didn't want to clear out all of my roth and cash accounts.



I was trying to expedite the loan approval process. I have access to advice from a financial advisor, because I keep about 25% of my retirement funds with him. He holds all of my wife's accounts, and my roth accounts.



He recommended that I borrow from my IRA account, pay cash at the closing, and then get a new loan set up to repay my IRA account within 60 days without a penalty.



I didn't know I could do this, and it seems to be working out very well. I'm assuming the loan I'm applying for is approved within 60 days.



I just thought I would let others know about this IRA rule. Maybe it is common knowledge, but I've never heard of it.


Take care,



JP
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Old 02-26-2020, 04:10 PM   #2
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While there is no provision for "borrowing" from your IRA, what you FA says can be done essentially using the rules that allows one to withdraw from an IRA and then redeposit the money within 60 days.

The risk is that if your mortgage process gets hung up and you don't have your mortgage money within 60 days then you'll have to pay tax on the amount withdrawn and 10% penalty if you are under 59 1/2.

The other thing that might come into play is if you buy first then your mortgage changes from a purchase money mortgage to a cash-out mortgage and might be subject to different rules. Ask your lender.

I would not take the risk.

You shouldn't have to travel back to do a closing. We closed on our Florida condo from 1500 miles away.
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Old 02-26-2020, 04:27 PM   #3
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Pub4uski,
I agree that I don't have to be there to close, but I want to stay there for 4-6 weeks, and get my new town home all set up with necessities. I'm also in no hurry to return to Minnesota early.



I'm also over 59 and a half years old, so I don't have to worry about the extra penalty, just the extra income of the IRA withdrawal.



My backup plan if the loan doesn't get done in 60 days is to pull out $100K on my HELOC, and also move some cash back into the IRA.


I also agree with you, that there are some risks. Thanks for your comments.



JP
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Old 02-26-2020, 04:38 PM   #4
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It's a legitimate strategy/loophole. You can't have done, or do, another 60-day rollover (in ANY of your IRAs) within 12 months of this one.
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Old 02-26-2020, 04:58 PM   #5
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Not sure it it's common knowledge, but it's pretty obvious and has been discussed here on the board for similar situations (RE purchase). I think in one case someone needed to pay cash up front in a seller's market.

The potential downfall is this.....it's market timing if you need more than whatever you are holding in a cash allocation. Changes in the equity market could alter what you are actually paying to expedite the purchase. It could cost you more or it could work out in your favor.
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Old 02-28-2020, 03:52 AM   #6
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I plan on doing something similar. I close on my new house a couple of weeks before I close on my current home. When my current home closes I’ll put the money back into the IRA.

Hopefully there won’t be any delays in closing on my current hame. The buyers are paying cash, so hopefully the current downturn in the market won’t change their mind.
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