Author Topic: Can you borrow from a Roth IRA and then repay the money?  (Read 1284 times)

RedmondStash

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Can you borrow from a Roth IRA and then repay the money?
« on: May 27, 2021, 03:09:23 PM »
Is it possible to borrow/withdraw funds from a Roth IRA and then repay/replace the money?

I'm looking at buying a new house, but may not qualify for much of a mortgage given that I'm FIREd but not yet eligible for Social Security. I own my current home outright, and plan to sell it, but the housing market is so hot right now that I'm not sure I could buy one house contingent on selling another.

I know I can withdraw the contributions I've made to my Roth, but I'd hate to pull the money out of that account permanently because of its tax-exempt status. I'd only be looking to bridge the gap between buying the new house and selling the old one.

Cursory Googling suggests that I might be able to pull a max of $10k from a Roth. I figured someone here might know more.

EvenSteven

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Re: Can you borrow from a Roth IRA and then repay the money?
« Reply #1 on: May 27, 2021, 03:52:24 PM »
Is it possible to borrow/withdraw funds from a Roth IRA and then repay/replace the money?

I'm looking at buying a new house, but may not qualify for much of a mortgage given that I'm FIREd but not yet eligible for Social Security. I own my current home outright, and plan to sell it, but the housing market is so hot right now that I'm not sure I could buy one house contingent on selling another.

I know I can withdraw the contributions I've made to my Roth, but I'd hate to pull the money out of that account permanently because of its tax-exempt status. I'd only be looking to bridge the gap between buying the new house and selling the old one.

Cursory Googling suggests that I might be able to pull a max of $10k from a Roth. I figured someone here might know more.

Kind of. You can do an email nodes removed (lol phone autocorrect) indirect rollover, where you can have 60 days to put it back, and you can only do it once per year.
« Last Edit: May 27, 2021, 04:04:52 PM by EvenSteven »

mckaylabaloney

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Re: Can you borrow from a Roth IRA and then repay the money?
« Reply #2 on: May 27, 2021, 04:03:13 PM »
Is it possible to borrow/withdraw funds from a Roth IRA and then repay/replace the money?

Yes, but you have to replace the money within 60 days (it's treated as a rollover).

Cursory Googling suggests that I might be able to pull a max of $10k from a Roth. I figured someone here might know more.

You can withdraw $10k in tax-free earnings for a house purchase once in your lifetime. In order to do this, it has to be a few years since you've owned a home (it's intended for first-time homebuyers), so it sounds like this doesn't apply to you.

RedmondStash

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Re: Can you borrow from a Roth IRA and then repay the money?
« Reply #3 on: May 27, 2021, 06:27:35 PM »
Excellent, thanks. This is just what I was hoping to find out.

Does anyone know whether the limit of one per year is per person or per household? If spouse & I file jointly, can each of us do one IRA rollover a year?

EvenSteven

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Re: Can you borrow from a Roth IRA and then repay the money?
« Reply #4 on: May 28, 2021, 11:08:29 AM »
Excellent, thanks. This is just what I was hoping to find out.

Does anyone know whether the limit of one per year is per person or per household? If spouse & I file jointly, can each of us do one IRA rollover a year?

It is one per tax payer. That means that you and your spouse each have your own indirect roll over opportunities, so yes you can each do one.

Rubic

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Re: Can you borrow from a Roth IRA and then repay the money?
« Reply #5 on: May 28, 2021, 11:30:42 AM »
Excellent, thanks. This is just what I was hoping to find out.

Keep in mind the loan processor may likely request account statements on
where your funds are coming from.  If a large deposit appears in the account just
prior to the loan application, it may signal a red flag and you'll need to provide
an explanation for the source of the funds.

secondcor521

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Re: Can you borrow from a Roth IRA and then repay the money?
« Reply #6 on: May 28, 2021, 12:09:56 PM »
The Roth rollover thing can work, but the 60 day time limit might be challenging.

If you both have Roths with enough, you could consider withdrawing from spouse1 IRA on day 1, withdrawing the same amount from spouse2 IRA on day 50ish and using the funds to repay the rollover from spouse1 IRA.  Then repay the spouse2 IRA on day 100ish.

Since you own your own home, though, if I were in your shoes I'd probably be more likely to find some way to do the financing based on my home equity.  They used to have something called a bridge loan for this kind of situation, I don't know if that product still exists.  You could get a HELOC.

What I'd actually probably do, though, is sell house #1, park the proceeds in a savings account, then buy house #2.  It involves moving twice (probably) but avoids financing hassle, so it's a tradeoff.

RedmondStash

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Re: Can you borrow from a Roth IRA and then repay the money?
« Reply #7 on: May 29, 2021, 06:30:20 PM »
Thanks, everyone. More good thoughts here.

The Roth rollover thing can work, but the 60 day time limit might be challenging.

If you both have Roths with enough, you could consider withdrawing from spouse1 IRA on day 1, withdrawing the same amount from spouse2 IRA on day 50ish and using the funds to repay the rollover from spouse1 IRA.  Then repay the spouse2 IRA on day 100ish.

Yeah, I'd thought about that possibility. It's a nice option to keep in my back pocket.

Quote
Since you own your own home, though, if I were in your shoes I'd probably be more likely to find some way to do the financing based on my home equity.  They used to have something called a bridge loan for this kind of situation, I don't know if that product still exists.  You could get a HELOC.

The idea of a bridge loan is interesting; I'll look into it. Thanks.

Unfortunately, our current HELOC prohibits using funds withdrawn from it to finance a different house. However, I don't see any reason we can't use that HELOC to pay for living expenses for a while, thus saving up our own money. We might even be able to take a withdrawal from an IRA, and then use money from the HELOC to pay it back if we start getting close to that 60-day limit. Strange how different buckets of money are treated differently.

Quote
What I'd actually probably do, though, is sell house #1, park the proceeds in a savings account, then buy house #2.  It involves moving twice (probably) but avoids financing hassle, so it's a tradeoff.

Yeah, that's a possibility too. It's just that housing prices are rising so fast in my area that once we get out, we might not be able to get back in.

We *might* be able to buy a home contingent on selling our current home, thus avoiding financing. But that would limit our options to sellers willing to accept contingent offers.

Aegishjalmur

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Re: Can you borrow from a Roth IRA and then repay the money?
« Reply #8 on: May 30, 2021, 11:14:45 AM »
Excellent, thanks. This is just what I was hoping to find out.

Keep in mind the loan processor may likely request account statements on
where your funds are coming from.  If a large deposit appears in the account just
prior to the loan application, it may signal a red flag and you'll need to provide
an explanation for the source of the funds.

They will. And if you tell them it's being done as a rollover and has to be repaid within 60 days, they may not allow you to use those funds at all.

iluvzbeach

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Re: Can you borrow from a Roth IRA and then repay the money?
« Reply #9 on: May 30, 2021, 01:38:22 PM »
What about selling your house but having a 60-90 rent back option? That way you get your money and have time to find something without any contingency. If you were to do something like this, would you need a mortgage at all? If not, this might be your most cost effective option.

RedmondStash

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Re: Can you borrow from a Roth IRA and then repay the money?
« Reply #10 on: May 30, 2021, 04:38:34 PM »
What about selling your house but having a 60-90 rent back option? That way you get your money and have time to find something without any contingency. If you were to do something like this, would you need a mortgage at all? If not, this might be your most cost effective option.

It's a thought. But we're picky about the house we want to buy, and there's no guarantee we'd find something we like during the rent-back period. It's definitely an option, though.

Excellent, thanks. This is just what I was hoping to find out.

Keep in mind the loan processor may likely request account statements on
where your funds are coming from.  If a large deposit appears in the account just
prior to the loan application, it may signal a red flag and you'll need to provide
an explanation for the source of the funds.

They will. And if you tell them it's being done as a rollover and has to be repaid within 60 days, they may not allow you to use those funds at all.

I'll keep that in mind, thanks.

 

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