Sage Realty LLC Discusses Pros and Cons of Using IRA Funds to Purchase A Home for Sale
Owning a home fulfills the American dream of having a place to call your own. One of the largest obstacles when acquiring a home is determining how to pay for and properly allocate resources for the best return on investment. A recent article from msn.com discusses how homebuyers have the option to tap into IRA funds in order to make a required down payment on a home. Sage Realty LLC discusses this decision further, and offers advice when looking to purchase a home for sale in and around the Main Line area.
Rent versus Buy
An initial decision is whether to rent or buy. This can be challenging because the best option is not always clear. (For example, if you are not planning on staying in the same geographical area for a long time, renting is usually the better choice).
If buying is the answer for you, the truth is you may be able to use money from your IRA without incurring a penalty when using the funds to buy your first home, (the IRS makes an exception for withdrawals up to $10,000 when the funds are used to purchase a home, according to the article from msn.com). However, using this method may not not be the best option. Especially if you have debt in other areas, such as credit cards and/or student loans.
Why Saying No is Sometimes Best
Remember that there are sacrifices when tapping into retirement savings. By removing money now, you are losing out on compounding interest. Money taken out now will be gone. However, that same amount of money will grow into a greater amount if saved in your IRA.
As with any general rule of thumb, there are exceptions. In the case of pulling from your IRA to buy a home, the decision can be a good one if you have accumulated a large amount of savings in your account. A respectable guideline to follow is you should save 60 percent of your current annual income. If you have not, leave money in your IRA for the future. If you have already saved over 60 percent, make sure that you meet the criteria to avoid penalties and proceed confidently with your withdrawal decision to make your first home purchases, (remember, you must be a first-time homebuyer).
In the end, the decision is your own when deciding when and how to purchase a home for sale. Remember to try to stay within your budget, and think about your overall financial picture before dipping into funds allocated for the future. While being comfortable is important, remember that trading out future funds for current luxuries may not be the wisest decision. If you have questions regarding how to allocate funds for your first home purchase, contact Sage Realty LLC at 610-687-4000.
Tags: Home for Sale