Using an IRA or 401(k) Loan to Buy Real Estate

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One of the most difficult parts of buying real estate is coming up with enough money for the downpayment and post-closing expenses. Yet many people donÂ?t realize that itÂ?s possible to use some of their retirement funds to purchase real estate in ways that wonÂ?t trigger tax penalties.

One of the most difficult parts of buying real estate is coming up with enough money for the downpayment and post-closing expenses. Yet many people don’t realize that it’s possible to use some of their retirement funds to purchase real estate in ways that won’t trigger tax penalties.

“I think there’s a misconception among the public that if you tap into your IRA or 401(k) before retirement you’ll be hit with all kinds of taxes and penalties,” said Daniel Lamaute, CEO of Lamaute Capital, Inc. “While that is true in most cases, there exist some key exceptions for real estate.”

Lamaute Capital (http://www.Investsafe.com) provides vital information about how homebuyers and investors can avoid taxes and/or penalties when using retirement money to buy real estate.

One of the most flexible options involves using a 401(k) loan. Employees who belong to a 401(k) plan should ask their employer if their 401(k) allows for loans. Self-employed individuals and business owners with no employees can set up their own Self-Employed 401(k) plan with the loan privileges.

A 401(k) loan can be up to 50 percent of the 401(k) account balance, up to a maximum loan of $50,000. Many people rollover funds from an IRA or 401(k) from a former employer to initially fund their Self-Employed 401(k). A 401(k) loan remains tax-free and penalty-free, as long as the loan is paid back according to IRS guidelines. A 401(k) loan can be used for the property purchase, repairs, home improvement, anything. But when a 401(k) loan is used to buy a primary residence, the loan repayment period can be extended from the normal 5 years to 10 or more years.

Another little-know tax-saving rule allows the first-time homebuyer to withdraw up to $10,000 from their IRA before the age of 59½ without incurring the 10 percent early withdrawal tax penalty, if the money is used to buy, build, or rebuild a primary residence.

In addition, a spouse or family member can tap their IRA account without penalty to help a family member buy a first home. The maximum withdrawal is $10,000 and it must be the first time the spouse or family member has used the homebuyer exclusion.

Lamaute Capital, Inc.(http://www.Investsafe.com) is an investment brokerage firm that specializes in retirement plans. Lamaute Capital, Inc. does not give legal or tax advice. Tax laws and regulations are complex and subject to change. Please consult an attorney or tax advisor about your particular situation.

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D Lamaute