Using Your IRA Funds to Invest in Magnolia TX Real Estate
You probably already know that you can invest your IRA money in stocks and bonds and even in mutual funds if you so desire, but did you know that you can also invest those IRA funds in Magnolia TX real estate? Doing so, however, is a bit complicated, and IRS rules concerning such purchases must be followed to the letter.
Usually, when you take money out of an individual retirement account before you reach age 59 1/2, the IRS considers these premature distributions. In addition to owing any tax that might be due on the money, you’ll face a 10 percent penalty charge on the amount. This is not the case, however, when you use the money to buy your first Magnolia TX investment real estate. (Note: Technically, you don’t have to be purchasing your very first home or building. You qualify under the tax rules as long as you, or your spouse, didn’t own a principal residence at any time during the previous two years.) You can use up to $10,000 in IRA funds toward this purchase. If you’re married, and you and your spouse are both first-time buyers, you can each pull from retirement accounts, giving you $20,000 to use.
The restrictions are many (and perhaps time-consuming) and include the following:
- You will need to find an IRS custodian who handles these investments (and the options are currently limited). Generally banks and brokerage firms do not handle IRA distributions for Magnolia TX real estate transactions.
- Only the custodian may handle your IRS funds.
- The type of property you buy must be for investment only and may not be used by you or by relatives.
- All proceeds from the investment will go back into your IRA fund. Likewise, however, all expenses must be paid from that fund, so you must have enough liquidity in your IRA to cover such costs.
- You must let the IRS know that you used the retirement money early for a tax-acceptable purpose by filing Form 5329.
- You must use the IRA funds within 120 days of withdrawal to pay qualified acquisition costs. This includes the costs of buying, building or rebuilding a home, along with any usual settlement, financing or closing costs.
The above information applies only to traditional IRSs. To learn about the procedure for an Roth IRA, click here
Whether you are new to the Magnolia Texas real estate market, thinking of moving up, or you’re an experienced investor, Pam Sitterly has the expertise, proven track record, and resources to help you buy Magnolia TX real estate for sale or market Magnolia TX homes for sale. Enthusiasm, knowledge of the area and personal concern for her client’s interests combine to make Pam an outstanding resource for your real estate transactions.
Pam works extensively to help Buyers and Sellers meet their Magnolia Texas real estate goals. For more information about buying or selling your Magnolia TX home, please call Pam at 281-723-0324 or via email with this convenient contact form.