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When retirement is on the horizon, it’s natural to start thinking about where you want to spend your later years. In fact, you may even be tempted to buy a house now to set yourself up for the life you want as a retiree.
Of course, this is also a time in life when you may have lots of financial obligations, from sending kids to college to saving for that imminent retirement. If you’re cash-strapped but have built up a pretty good balance in your IRA, it’s natural to wonder if you can use that money to purchase your future retirement home.
The answer is that you can, and there are a couple of ways to do it — but both have some pretty significant downsides. Here are the options, including how you can invest in real estate without needing to buy and manage a property.
Buying a house within your IRA
You don’t have to keep your IRA with a brokerage firm and invest in equities. You can open a self-directed IRA and buy other assets, including real estate. There are companies that will set up a self-directed IRA and act as the custodian for you, often for a hefty fee.
Once you’ve opened and funded your self-directed IRA, you can make a home purchase within it. However, there’s a really big catch — you can’t engage in any self-dealing with your IRA funds. That means you (and your family) can’t personally benefit from the investment property.
New ways to invest in real estate for your retirement
Buying a home is far from the only way to gain exposure to real estate as an investor.
Both the rental and commercial markets are worth a look too, especially if you don’t want to deal with the work and hassles of managing a property and tenants.
If you want to buy property in the U.S., the national average cost is $495,000. For most, a 40% down payment on that price tag just isn’t feasible. And that could mean you’re looking at a mortgage rate around 6-7%.
Then there’s the added cost of maintenance and upkeep. That averages at around $18,000 a year, which is steadily climbing, and already 26% higher than four years ago.
You can circumvent that costly mess with Arrived, a Bezos-backed platform that allows investors to buy stakes in rental homes and vacation rentals without the hassle of homeownership or tenant management.
With Arrived, you can pick from a curated selection of homes and invest in your own share. While Arrived doesn’t offer a Roth IRA, it accepts investments from a checkbook IRA. You’ll also avoid any tax on rental income you earn, or appreciation on the investment.
You can start investing in rental properties with just $100.
Commercial real estate is another example of a reliable income stream. As an investment, it can be even more challenging to access and manage. And while some commercial investment opportunities are expected to witness weaker growth in 2025, they are not all one-and-the-same. Real estate for essential businesses, like grocery stores and health care facilities, is still popular because it has proven resilient to the broader e-commerce transition and post-pandedmic economy.
First National Realty Partners (FNRP) is ideally situated to take advantage of the opportunities in this sector.
FNRP allows accredited individual investors to access institutional-quality commercial real estate investments — without the leg work of finding deals yourself.
The FNRP team has developed relationships with the nation’s largest essential-needs brands, including Kroger, Walmart and Whole Foods and provides white-glove service for investors. So, the team takes care of finding and managing the property deals, while investors can engage with experts, explore available deals and easily make an allocation, all in one personalized portal.
You can even invest through a Roth IRA — meaning, you’ll receive tax-free payments and distributions that won’t be added to your combined income calculation.
Self-directed IRAs
If you’re interested in self-directed IRAs, it’s important to speak to an expert to ensure you understand the rules and red tape that come with this kind of investment. Speaking to a financial advisor about your options — regardless of your retirement plans — is the best place to start.
When it comes to preparing for retirement, having a solid financial plan is essential to make sure you can live out your golden years in peace. Whether you’re focused on safeguarding your assets or diversifying your portfolio, working with a financial advisor can be a crucial step in securing your future.
To ensure your retirement fund is on the right track — and help you spend less time worrying about it — WiserAdvisor matches you with vetted financial advisors suited to your unique needs.
With no fees to get started, you can browse your advisor matches with WiserAdvisor’s comparison tool and book a free consultation.
There’s a major downside to buying property with a self-directed IRA: You can’t live in the house or let family members live there, even if they pay rent. You can’t use it for personal reasons under any circumstances at all. You can’t even buy furniture for the property from your own funds; it all has to come from the IRA. Plus, if you do decide to live in the house upon retirement, you’d have to take the property as a distribution and pay taxes on the distribution.
This could leave you with a huge bill, especially if the property has gone up in value. The tax bill could be too big for you to afford without selling or mortgaging the property.
If you’re already looking at refinancing your current mortgage, Mortgage Research Center is also a beneficial tool for finding a better rate so that you can save more for your golden years.
When you enter some information about yourself and your current mortgage, MRC will match you with vetted lenders offering competitive rates.
As if a big tax bill wasn’t enough reason not to use your IRA to buy a home, the money you’ve used to buy the house won’t be available for your use in retirement, and it won’t be invested in other things that help your account grow.
In this situation, you’ll also be raiding your retirement account of funds that could otherwise remain invested in equities that grow in value over time. This reduces the balance you end up with and leaves you with less to live on. Yes, you’ll have the house — but your money will be tied up in it.
The bottom line is, if you’re nearing retirement, you should only buy a home if you can afford a down payment, maintenance costs, and mortgage payments without jeopardizing the nest egg you need for your golden years.
More ways to save for retirement
Rather than tapping your IRA for a cozy nest to retire in, why not use your savings to build wealth that can give you more options in retirement?
A certificate of deposit is a low-risk savings account that could earn as much interest as a high-yield savings account, possibly more. However, to earn that higher rate, you’ll have to park your money in the account for a certain period of time.
With SavingsAccounts.com, you can shop and compare top CD rates from various banks and credit unions nationwide for free.
Their extensive database shows the most competitive rates without bias, with daily rate updates and earnings calculators which means you have the tools to find the right CD to meet your savings goals.
You should always have a savings stockpile or emergency fund for when unexpected costs arise, whether you’re retired or you’re still working.
If you want to help your money grow even faster, a high yield savings account can help you do just that.
If you’re still hungry for more set-it-and-forget-it savings options with better yields than big banks, take a deeper look at some of the best high-interest savings accounts available right now on the Moneywise list of the Best High-Yield Savings Accounts of 2024.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
