Can I use some money from my self directed IRA to put down on a house without penalty?
No
I know that there are ways to borrow against your self directed IRA to purchase real estate. Im not 100% on this but im pretty sure you can do it without having to pay a penalty and you can even reinvest the profits back into your IRA tax free as long as you are under 55. I am still very young and don’t have enough $$$ in my IRA to buy anything with it yet, but i remember reading about people doing that somewhere in training material from Trump University… I know it can be done, i don’t know the stipulations and i know you have to have a brokerage that will allow you to do it. Hope this helps… :beer
The IRS doesn’t allow an IRA to be used as collateral and an IRA is forbidden from lending the owner money. The IRS publishes information on prohibitted transactions and unrelated business income tax for IRAs.
The IRA can purchase a property, make the down payment, receive proceeds, pay expenses, etc. as a self-directed IRA investment. However, this generates UBI for the IRA, which can have significant tax consequences. It also costs a pretty hefty fee from the administrator to operate such a venture.
The IRA is prohibited from comingling with the owner or owning property that benefits the owner. Thus, a down payment on a property owned by the individual is prohibited.
The IRA is prohibited from owning any asset that also benefits any member of the owner’s family.
Some people tout a “checkbook” IRA whereby the IRA invests in an LLC that the owner has checkbook control over, thus allowing the IRA, through the LLC, access to a wide variety of investments that the owner of the IRA directs. I’m not aware of any IRA administrator that will allow this. I’m guessing that it would require a private letter ruling from IRS and probably a legal opinion before they would proceed with this. None of this will be easy or inexpensive.
So, the answer to the question is “No.”
That said, I have a self directed IRA that is invested in a variety of public limited partnerships invested in real estate. It’s a great tool, but not for the purpose voiced in the OP.
Thanks. Some good info here.