Purchasing a home - Use Retirement/Non Retirement Funds?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
NYC1
Posts: 13
Joined: Thu Jun 28, 2018 3:25 pm

Purchasing a home - Use Retirement/Non Retirement Funds?

Post by NYC1 » Mon Jul 15, 2019 7:57 am

Hello,

I am purchasing a new home. I plan on borrowing the deposit from my Vanguard funds, with the plan on returning the money within 60 - 90 days. My questions are as follows:

1. Should I use my Retirement Vanguard or my Non-Retirement account to "borrow" the money from myself? I plan on returning the money to my fund within 60-90 days.

2. Are there any other recommendations on how to best perform this transaction? I do not want the new home to be subject to the sale of my existing hope and believe this is the best way to "lend myself" the needed down payment.

Thanks in advance for your replies!

dbr
Posts: 32136
Joined: Sun Mar 04, 2007 9:50 am

Re: Purchasing a home - Use Retirement/Non Retirement Funds?

Post by dbr » Mon Jul 15, 2019 9:28 am

A temporary cash management process from your taxable investments should be a non-issue unless you are going to sell something at a large realized capital gain. Maybe you could supply more detail about what you have in mind. What is making you suggest taking a loan from your retirement account?

Note: I would not use the word "borrow" for cases that are not actually a loan mixed up with cases that are actually a loan. For one thing if you are taking out a mortgage the bank may care how you are actually coming up with your down payment.

Topic Author
NYC1
Posts: 13
Joined: Thu Jun 28, 2018 3:25 pm

Re: Purchasing a home - Use Retirement/Non Retirement Funds?

Post by NYC1 » Mon Jul 15, 2019 9:47 am

Thank you for taking the time to reply. Here are the details.

1. Looking to put down a deposit of 150K.
2. Have to pay off an existing mortgage of 100K to obtain the new mortgage.
3. I expect to outlay approx 300K from personal funds.
4. I expect to receive approx 300K from sale of an existing home.

One idea that I did not mention that I would like to share is as follows:

1. If I borrow 300k from my Retirement Account I have 60 days to replay this account. If I am abe to sell my existing home before the 60 days I do not incur any capital Gains?

2. If I cannot sell my home within 60 Days can I pay back my retirement account from non-retirement funds, then repay myself after the sale of the existing home?

Hope this makes sense! Thank you for your replies!

dbr
Posts: 32136
Joined: Sun Mar 04, 2007 9:50 am

Re: Purchasing a home - Use Retirement/Non Retirement Funds?

Post by dbr » Mon Jul 15, 2019 9:55 am

The capital gain concern I had was with capital gains when you sell whatever your personal funds are held in.

Topic Author
NYC1
Posts: 13
Joined: Thu Jun 28, 2018 3:25 pm

Re: Purchasing a home - Use Retirement/Non Retirement Funds?

Post by NYC1 » Mon Jul 15, 2019 10:01 am

Thank you for your reply. The funds being discussed are in Vanguard Index 500 funds.

dbr
Posts: 32136
Joined: Sun Mar 04, 2007 9:50 am

Re: Purchasing a home - Use Retirement/Non Retirement Funds?

Post by dbr » Mon Jul 15, 2019 10:18 am

NYC1 wrote:
Mon Jul 15, 2019 10:01 am
Thank you for your reply. The funds being discussed are in Vanguard Index 500 funds.
You don't want to take a tax hit selling any of that. But you need to see how much gain you would realize.

User avatar
Silly Wabbit
Posts: 129
Joined: Sat Mar 25, 2017 9:54 pm

Re: Purchasing a home - Use Retirement/Non Retirement Funds?

Post by Silly Wabbit » Mon Jul 15, 2019 10:31 am

NYC1 wrote:
Mon Jul 15, 2019 9:47 am
1. If I borrow 300k from my Retirement Account I have 60 days to replay this account. If I am abe to sell my existing home before the 60 days I do not incur any capital Gains?
Are the limits on retirement account loans this high?

Nowizard
Posts: 2596
Joined: Tue Oct 23, 2007 5:33 pm

Re: Purchasing a home - Use Retirement/Non Retirement Funds?

Post by Nowizard » Mon Jul 15, 2019 1:43 pm

Sounds like you have a home already, but can withdraw $10K from a Roth without penalty if a first home, from what was posted in another thread.

Tim

bloom2708
Posts: 7414
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Purchasing a home - Use Retirement/Non Retirement Funds?

Post by bloom2708 » Mon Jul 15, 2019 1:48 pm

What type of retirement account?

You are using the term "borrow". Are you taking a 401k loan?

Is it a Traditional IRA and you are going to do a withdrawal (no such thing as a borrow) and then put the funds back?

What if the timing doesn't work out? Are you buying too much house? Requiring a 401k loan or borrowing from retirement is not a good idea.

How about a HELOC or Home Equity loan? Or borrow more initially and then pay down a big chunk when the current home sells?

Good luck!
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words: Whole food, plant based

Topic Author
NYC1
Posts: 13
Joined: Thu Jun 28, 2018 3:25 pm

Re: Purchasing a home - Use Retirement/Non Retirement Funds?

Post by NYC1 » Mon Jul 15, 2019 2:36 pm

Hello,

Thank you for your reply, let me clarify my situation.

1. I own an existing home that upon its sale will allow me to return 300K back to my Vanguard Index 500 Account.

2. I have sufficient funds in BOTH my Retirement V 500 Index fund and a second account that is Non-Retirement Index 500 Account.

3. If I take the 300K from the non-retirement account now, I owe capital gains asset value increase on the withdrawal.

4. If I take the 300K from the Retirement account, I have 60 days to return the money back to the account and pay no capital gains.

I was not planning on taking a loan on the retirement account, but just to withdraw the funds and return them within 60 days. Am I not allowed to do this?

Hope this clarifies my situation. Thanks!

TravelforFun
Posts: 2000
Joined: Tue Dec 04, 2012 11:05 pm

Re: Purchasing a home - Use Retirement/Non Retirement Funds?

Post by TravelforFun » Mon Jul 15, 2019 3:08 pm

NYC1 wrote:
Mon Jul 15, 2019 2:36 pm
Hello,

Thank you for your reply, let me clarify my situation.

1. I own an existing home that upon its sale will allow me to return 300K back to my Vanguard Index 500 Account.

2. I have sufficient funds in BOTH my Retirement V 500 Index fund and a second account that is Non-Retirement Index 500 Account.

3. If I take the 300K from the non-retirement account now, I owe capital gains asset value increase on the withdrawal.

4. If I take the 300K from the Retirement account, I have 60 days to return the money back to the account and pay no capital gains.

I was not planning on taking a loan on the retirement account, but just to withdraw the funds and return them within 60 days. Am I not allowed to do this?

Hope this clarifies my situation. Thanks!
You are allowed to withdraw (not a loan) from your IRA and put it back later. If you put the entire amount back within 60 days, you would owe the IRS nothing. After 60 days, you would owe income taxes on the entire amount plus perhaps 10% penalty. You're allowed to withdraw from your IRA once a year.

I get that you're thinking about withdrawing the money from your IRA because you don't want to pay LTC if you were to sell stocks or funds in your taxable account to get the cash, but you may be playing with fire on the 60 days if your income tax rate is significantly more than 15% (LTC rate) and you're younger than 59.5.

TravelforFun

Post Reply