Can You Pay Off Real Estate With an IRA?
Laura Adams, MBA
Tom asks:
Can I use money in my retirement account to pay off my mortgage on an investment property? Could I set up an LLC for the property and move money from the retirement account to the LLC to be used to pay off the mortgage?
There is a special type of retirement account called a self-directed IRA that allows you to purchase real estate and other less mainstream investments like private businesses, notes, and tax liens. However, self-directed IRAs come with many restrictions.
A self-directed IRA has the same basic rules as a traditional IRA. Assets can’t be withdrawn until you reach age 59-1/2, without triggering income tax plus an early withdrawal penalty.
However, self-directed IRAs have additional restrictions when it comes to owning real estate, because you’re prohibited from taking any personal benefit from the property before age 59-1/2. Using money or assets in a self-directed IRA before the law allows is called a self-dealing transaction, which violates the rules and puts the tax-deferred status of the account in jeopardy.
Because you already own the investment property, it would be considered a self-dealing, prohibited transaction to withdraw money from a self-directed IRA to buy it or pay down the mortgage. This is the case no matter if the property is in your name or in the name of your LLC.
To learn more, check out a previous podcast and article, Can You Use IRA Funds to Buy Real Estate?
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Laura Adams is the award-winning author of Money Girl’s Smart Moves to Grow Rich. Get the paperback or ebook on Amazon.com!
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.