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How You Can Use Money from Your IRA for Some Types of Real Estate Ownership

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Posted by Colorado Real Estate Staff on December 28, 2016

Are you looking at buying or building your first home? Do you have a family member you would like to help with this same task? There are nine exceptions to you being able to make an early withdrawal from your IRA without paying the 10% early distribution penalty tax. One in particular deals with home ownership for you or a family member.

IRA Withdrawal Rules

To receive funds from your self directed IRA without penalty, you must reach the age of 59 ½ (the Roth IRA also requires that the account has been open for at least five years).

Required Minimum Distributions

Traditional IRA, SEP, SIMPLE and Solo 401(k) account holders must begin taking required minimum distributions (RMD) from their accounts beginning April 1st of the year following reaching age 70 ½.

RMD is calculated by special formula relating to life expectancy; please consult with IRS Publication 590 and/or a tax consultant. RMDs are calculated for each account, which means if you have multiple accounts you are required to take distributions from each account.

Special Note on Premature Distributions

You can generally withdraw funds from a Traditional or Roth IRA without penalty at any time after you have attained the age of 59 ½. If you decided to withdraw money from your Traditional or Roth IRA account prior to reaching age 59 ½ you will be subject a 10% early distribution penalty tax (with the Roth IRA, you can withdraw any contribution as long as it has been in the account for 5 years).

Nine Key Exceptions:

Yes, there are several exceptions to the 10% early distribution penalty tax. Among the exceptions recognized under the Internal Revenue Code are the distributions due to the following events:

  • Death
  • Disability
  • Qualified higher education expenses
  • The distributions are part of a series of substantially equal payments
  • Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income
  • Medical insurance premiums
  • Expenses associated with buying or building a first home
  • Payment of any IRS levy
  • Qualified reservist distribution
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Let’s look at the first time home exemption a little closer.

You do not have to pay the 10 percent tax on IRA withdrawals of up to $10,000 that are used to buy, build, or rebuild a first home. And if both you and your spouse are first-time homebuyers, the limit doubles to $20,000. To qualify, the distribution must be spent on acquisition costs for a house for you, your spouse, or either of your children, grandchildren, parents, or other ancestor within 120 days of the distribution. But you can't use your IRA to help each of these people buy a first home. There's a lifetime cap of $10,000 for each IRA owner. You are considered a first-time homebuyer if you had no interest in a main home during the two-year period before the new home was acquired. If your new home purchase falls through or becomes delayed, you must put the money back in your IRA within 120 days of the distribution to avoid the tax.

For additional information regarding IRA withdrawal rules or the exceptions to the early distribution rules, please see IRS Publication 590-B. For information on Contributions to IRA’s see IRS Publication 590-A. Please visit my real estate ownership page for additional useful information.  regarding real estate ownership at 

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