Using Roth IRA Contributions for Home Purchase

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Topic Author
DaveInPgh
Posts: 40
Joined: Fri Jul 22, 2016 10:46 am

Using Roth IRA Contributions for Home Purchase

Post by DaveInPgh »

My wife and I are actively looking to buy a house out of state where we expect to spend our retirement. Although we intend on selling our current residence, I would like to be able to make an offer without contingencies. Having a contingency based on the sale of our home will both make our offer less attractive and it adds stress trying to coordinate an out of state move with two closings. Although mortgage contingencies are much more common and accepted regularly, I would prefer not to have a mortgage or to pay the costs associated with obtaining one.

The combined amounts between our savings and the contributions in the two Roth IRAs would fully cover the purchase if we were to go this route. We're not considering drawing earnings from the Roths, so the 10% early withdrawal penalty would not apply.

Making an offer with one or both of those contingencies is not off the table. I'd just like some thoughts on this idea. What am I not thinking about? Am I putting too much value on having the flexibility?

Any input or suggestions would be greatly appreciated.
Parkinglotracer
Posts: 4029
Joined: Fri Dec 20, 2019 2:49 am
Location: Upstate NY

Re: Using Roth IRA Contributions for Home Purchase

Post by Parkinglotracer »

Are you planning to use the Roth money for a short period of time (rollover limit 60 days) as a bridge loan to yourself or are you planning to withdraw it permanently?

What role do the Roths play in your portfolio and estate planning? If you were planning on leaving the z Roths to your kids so they are not having to pay taxes on them then you would lose that. If you sell your other property eventually then you will have a large amount now in a taxable account. What will the effect of that be on your long term estate planning and income taxes?


As someone smarter than me said a dollar in a Roth is worth more than a dollar in a taxable account.
bikesandbeers
Posts: 431
Joined: Thu Jun 13, 2019 2:08 am

Re: Using Roth IRA Contributions for Home Purchase

Post by bikesandbeers »

Roth space is too valuable to give up unless you are talking about a 60 day roll over. If you can qualify for a mortgage will still owning your current house I would go that route. You can get a full prewritten mortgage prior to making an offer, so that contingency very low risk. The rate doesn't really matter if you plan to pay it off as soon as you sell your current home, you just want very limited closing costs.

One other alternative would be to go ahead and sell your current house. Most of your stuff goes into storage and you can do a short term rental for 30-60 days or however long it takes to close on the new house.
tashnewbie
Posts: 4326
Joined: Thu Apr 23, 2020 12:44 pm

Re: Using Roth IRA Contributions for Home Purchase

Post by tashnewbie »

Not answering your specific question, but....I'd recommend not waiving home inspection contingency.
invest4
Posts: 1931
Joined: Wed Apr 24, 2019 2:19 am

Re: Using Roth IRA Contributions for Home Purchase

Post by invest4 »

For myself, I would have no interest in draining valuable Roth accounts for this purpose. I see a lot of utility in having a mortgage (hedge against inflation, liquidity, and leverage for additional investments) and would be my proposal (assuming you can qualify while still owning the existing home). Of course, I understand some people have a strong aversion to debt...which is ok, but I am not one of those people.

Best wishes.
jhawktx
Posts: 442
Joined: Thu May 19, 2011 8:15 am

Re: Using Roth IRA Contributions for Home Purchase

Post by jhawktx »

There is nothing wrong with your plan. It keeps things simple plus you are not totally wiping out your Roth.

Sure, you could get a mortgage and rent a place and put everything in storage. I always say moving a whole household of stuff in and out of storage, setting up utilities temporarily, etc. is more fun than a barrel of monkeys. While you're at it you could start a new business while living in your temporary place.

Or, just use the Roth.
Topic Author
DaveInPgh
Posts: 40
Joined: Fri Jul 22, 2016 10:46 am

Re: Using Roth IRA Contributions for Home Purchase

Post by DaveInPgh »

My apologies for not responding earlier. I truly appreciate all of the feedback.

We've met with a realtor in the area we plan to move and it's currently a buyer's market. There are a lot of properties that have been sitting on the market for months, so she doesn't anticipate any offers being declined based on the contingency of our current home selling. Especially if our house is under contract when we present an offer.
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