So Chris and I met with a financial planner last night and it was both interesting and informative. The most notable thing I think we learned is that first time homebuyers can help finance their home through their IRA retirement fund.
Typically when you make an early withdraw from an IRA you are subject to a 10% early withdraw penalty, early withdraws being any withdraw before you turn 59 and a half. However, according The Motley Fool’s article talking All About IRAs, courtesy of the 1997 Taxpayer Relief Act, changes to the laws allow a person to withdraw up to $10,000 from their IRA for a first time home purchase.
What does this mean? In the case of Chris and I, if we contribute heavily to our 401Ks and 403Bs at work over the next three years and then roll those into an IRA (which we can do penalty free), then we can each use $10,000 individually from those retirement accounts to put towards a down payment. Of course we can have additional savings as well for a down payment (and most likely would), but this is a tax sheltered way to go about it and will probably keep us in a lower tax bracket for the next year or two.
If you have an IRA, or even if you don’t I suggest reading up about some of the nuances of what you can do and a good place to start, in my opinion is the Motley Fool article I mentioned before, it has a lot more detailed information than I just mentioned.
2 responses so far ↓
1 Frema // Jul 13, 2006 at 4:50 pm
I have heard about this, thanks to Suze Orman’s Moneybook for the Young, Fabulous, and Broke. It is a very smart idea, but the idea of using my retirement money to buy a house makes me uneasy. For our generation, social security is never going to happen, and I already feel stupid for not having started one sooner. II keep having flashes of being 65, sick, and broke, having to depend on my children for my medications. I don’t want to do that to them.
Of course, I don’t want to live in an apartment forever, either. Sigh.
2 david // Jul 13, 2006 at 6:01 pm
I know what you mean, and Chris and I have talked about that alot. What it comes down to is we can save in our 401K / IRA program and also save seperately for a down payment in a savings account, however, the amount of money we are going to be able to save is going to remain the same.
So, my thought is that I’m just using the 401K / IRA as a high yield savings account and I’m only taking out money I wouldn’t have put in in the first place. Does that make sense? I know it makes Chris uneasy too…but at least if we did it this way it would be tax sheltered and lower the tax bracket we’d be in at the end of the year.
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