Can I use my IRA to buy a vacation home? Purchasing real estate through a retirement account requires a Self-Directed IRA that allows real estate investments. But if you are thinking about purchasing a property now and enjoying it when you retire, personal-use restrictions also matter. Tom Moore, President of IRA Advantage, discusses why IRA money may not be the right fit for that purchase, why contributing personal money does not allow you to stay there, and why your intended use should guide the planning.
Can I Use My IRA to Buy a Vacation Home for Retirement?
Imagine you plan to retire in three to five years. You find a property you would like to own and eventually use as a vacation home. You have retirement money available, so purchasing it through a Self-Directed IRA might seem like a natural way to get started.
But buying the property and being able to vacation there are two different things. A Self-Directed IRA allows you to invest in real estate, but it does not allow you to use that property personally while the account owns it. The IRA’s entire ownership interest in the property would have to be distributed to you before you could stay there.
If you are buying the property for future vacations, having enough money in your IRA is only part of the picture. You also need to consider how the property would move from a Self-Directed IRA investment to a home you can personally enjoy.
A retirement date gives you a timeframe for planning, but it does not resolve that ownership question. Buying with IRA funds now means accounting for the distribution requirement in your plans for later.
Paying Half Personally Does Not Allow Half-Time Use
One possible workaround might seem reasonable at first: use Self-Directed IRA money for half the purchase and personal money for the other half. Since you personally paid for half the property, could you stay there half the time?
No. Contributing personal money does not give you permission to use the property while your IRA still owns a share.
The misunderstanding comes from connecting the percentage you personally own with the amount of time you could spend there. In this situation, those percentages do not work that way. A half-personal, half-IRA purchase does not create an arrangement where you can divide vacation time according to your contributions.
The same distribution requirement remains. The IRA’s ownership interest must be fully distributed to you before personal use. If your reason for putting personal money into the purchase is to make occasional stays possible, that approach would not accomplish what you intended.
Plan Around How You Want to Use the Property
The starting point is what you want the property to do for you. Are you buying an investment, or are you trying to secure a future vacation home? If your goal includes personal stays, that needs to be part of the purchase discussion from the beginning.
Before choosing how to fund the purchase, ask:
- Does my IRA custodian allow real estate investments through a Self-Directed IRA?
- When do I want to begin staying at the property?
- Have I accounted for the need to fully distribute the IRA’s ownership interest before using it?
- Would it make more sense to buy the property with personal funds?
As with a 1031 Exchange, planning means asking questions before committing to a transaction. A Self-Directed IRA can provide a way to invest in property, but having IRA funds available does not automatically make them the right money for this particular purchase. Understanding the limits upfront helps you evaluate whether the way you buy the property fits the way you eventually want to use it.
If you are considering buying a future vacation home with Self-Directed IRA funds, contact IRA Advantage to discuss your purchase options and how they fit your plans for personal use.
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
FAQs About IRAs and Vacation Homes
Can I use my IRA to buy a vacation home that I will use later?
The purchase would need to be made through a Self-Directed IRA that allows real estate investments. Before you can stay there, the IRA’s entire ownership interest in the property must be distributed to you.
Can I stay at a property if I pay half personally and my Self-Directed IRA pays half?
No. Paying half with personal money does not allow you to stay there half the time while your IRA owns the other share.
Does a Self-Directed IRA allow personal use of its real estate?
No. Being able to invest in real estate through a Self-Directed IRA does not mean you can vacation at the property while the account owns it.
