What's the best way to cash out your IRA?

Question

Let's say, after 30 years, I have $500K in my IRA.

Can I transfer these funds directly to a house without being taxed? Or simply, is there any way I can touch this money without being taxed?

Answer 1

I recall during the previous housing boom there were a number of people promoting buying investment homes with your IRA. I think that can still be done but the paperwork, filings, and rules are many and convoluted, but it can be done. But not for your primary residence. It must be an investment property.

It the money goes in your pocket whether you put it against your house or not, you have to pay tax taxes on it.  

My question for you is; Why would you want to do that?

Your mortgage interest on your home is tax deductible. If you have a 6% mortgage interest rate and are in a 25% tax bracket, your after tax cost in interest is only 4.5%.  

Over time it is not hard to beat 4.5% interest investing that money in your IRA, compounded tax deferred. You could pull the money out of the IRA to pay the interest then the taxes would be deducted one for one, it would be a wash.

And the remaining money would continue to grow tax deferred.

Unless you think you cannot earn more than your after tax cost of the interest by investing then you would not want to do that anyway.  

Answer 2

Money from a traditional IRA is always taxed no matter who you are or how you take it out, since it was never taxed between you earning it and you investing it.

You can take it out without any penalties added to that tax if you are 59.5 years old, or if you take it out for reasons like education of your or a child or grandchild, excessive medical bills, or purchase of a home if you have not owned a home for at least two years.

That is why the Roth IRA is so popular.  You don't have to pay tax on anything your withdraw since you have already paid tax on what you invested before you invested it.

Answer 3

Oh, and if you 70.5 years, don't forget to start taking the mandatory distribution.  It's a real bummer to try and avoid a 25% tax rate just to pay 85%.

Answer 4

There is only one way for you not to pay any tax.

You have to die.  Your heirs would then pay the tax.

Assuming that it was a deductible traditional IRA, any withdrawals will be taxed regardless of what you do with the money.

Answer 5

If you have an IRA for 30 years, it is a traditional IRA and you must at least be close to or over 59 1/2 years old. So we won't worry about early withdrawal penalty.

If you find a custodian that is willing to do this, you could buy an INVESTMENT property with the money, or a share of an investment property. The key is investment, not personal residence. But good luck finding that custodian, especially with the current housing market.

Otherwise, you've been enjoying a tax break for 30 years, when you take money out, you will be taxed on it. You have to bite the bullet.

You also have considerable leeway in withdrawal. You can withdraw up to  a little less than the amount that puts you in the next tax bracket and pay as little tax as possible, withdraw it in years you don't have much other income, etc.

Answer 6

You can't touch money in a traditional IRA without it being taxed.  This extends to heirs.  The best you can do is wait until you are 59 1/2 and just pay tax at regular rates.

Answer 7

go to the suez orman website maybe she can help you on that

Answer 8

You'll be taxed, no matter what you do with the money, assuming it's a traditional IRA and not a Roth.

If you are over 59-1/2 there won't be any additional penalties.