For you younger folks:

[Rick O'Shay]

For you younger folks wanting to buy a house while prices and interest rates are down, and finding myself in the same situation, I recently discovered an interesting tidbit that will potentially help in this situation.

Disclaimer: I do not have all the details and may be missing something, but I intend to look closer into it.

If you have a conventional IRA or have a Roth IRA at least five years old, you can remove up to $10k from it for a down payment on a house without having to pay a penalty. You do however have to pay taxes on any capital gains. The way to save yourself a high tax burden will be to close on the house after the New Year, and any tax write-offs you accrue from interest payments will help offset the capital gains due at the end of the year.

You can roll 401k funds over into the IRA (non-employer contributions unless you are vested) and use them also.

Since discovering this I have created a new IRA, have plunked a chunk of my cash reserves into it, and am rolling funds from a previous employer's 401k, and some from my current one into it. I set this up with one of those online Stock Trading companies (like Scottrade and E-Trade) and am buying energy sector stocks (FPL, SO, EXC), and Google and Microsoft (GOOG & MSFT), all of which should do fairly well throughout the rest of the year, with the possible exception of EXC. Google and Microsoft are poised to gain some in equity, and the energy stocks I mentioned are in the Nuclear business, among other things, and will do well when oil prices go up again this summer.

I am posting this because I am pretty excited about discovering this, and wanted to share with anybody who might be in a similar position.

My $0.02

 

[ADJ423]

Sounds like a really bad financial plan to me but that's just my $0.02.

 

[Rick O'Shay]

Sounds like a really bad financial plan to me but that's just my $0.02.

What makes it sound bad to you?

 

[RDW]

Very neat avatar, great history

 

[Rick O'Shay]

Very neat avatar, great history

Thank you sir.

 

[gordo]

Also, if you haven't owned a home in the last 3 years, you are considered to be a first-time home buyer. For first-time home buyers who close and move into a home before November of this year, the I.R.S will send you a check for 10% of the purchase price up to a maximum of $8000. If you live in your house for three years, it it does not have to be paid back. To get the money, all you have to do is file an amended 2008 tax return upon closing and moving in.

 

[Rick O'Shay]

Actually it is a tax credit, but thanks for the info. I just went back into my Turbo Tax and plugged in a fictitious house I bought, and yes, I would get $8k in a check from Uncle Sugar. Wow!


Link Removed

Expanded Tax Break Available for 2009 First-Time Homebuyers


IR-2009-14, Feb. 25, 2009


WASHINGTON — The Internal Revenue Service announced today that taxpayers who qualify for the first-time homebuyer credit and purchase a home this year before Dec. 1 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Qualifying taxpayers who buy a home this year before Dec. 1 can get up to $8,000, or $4,000 for married filing separately.

“For first-time homebuyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit," said IRS Commissioner Doug Shulman. “This important change gives qualifying homebuyers cash they do not have to pay back.”

The IRS has posted a revised version of Form 5405, First-Time Homebuyer Credit, on IRS.gov. The revised form incorporates provisions from the American Recovery and Reinvestment Act of 2009. The instructions to the revised Form 5405 provide additional information on who can and cannot claim the credit, income limitations and repayment of the credit.

This year, qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.

For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.

The IRS also alerted taxpayers that the new law does not affect people who purchased a home after April 8, 2008, and on or before Dec. 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10 percent of the purchase price, up to $7,500, or $3,750 for married individuals filing separately. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.

 

[gordo]

They call it a tax credit, but they send you the money upon processing your amended tax return with form 5405.

 

[Rick O'Shay]

Yup, I looked into it. Thanks a bunch for the info! If I go this route, I can turn around and dump most of my retirement account money back in after getting the check. Very nice info indeed!

 

[ADJ423]

What makes it sound bad to you?

I just believe that the ONLY reason you should take money out of a retirement fund is that you retired. If you have to take funds from your retirement for a down payment then you cannot afford it. I would never take from retirement to go into debt. If you want to take a mortgage then have at least a 20% down to avoid PMI and get a 15 fixed mortgage with 0 points and 0 origination fees.
Second, I feel that buying single stocks are a big mistake. I would rather diversify in mutual funds with long track records than have a handful of single stocks.
These are just my financial beliefs. I know not everyone shares them so if that plan is for you then I hope you can find the perfect home because it is a great buyers market right now.

 

[rmarcustrucker]

I just believe that the ONLY reason you should take money out of a retirement fund is that you retired. If you have to take funds from your retirement for a down payment then you cannot afford it. I would never take from retirement to go into debt. If you want to take a mortgage then have at least a 20% down to avoid PMI and get a 15 fixed mortgage with 0 points and 0 origination fees.
Second, I feel that buying single stocks are a big mistake. I would rather diversify in mutual funds with long track records than have a handful of single stocks.
These are just my financial beliefs. I know not everyone shares them so if that plan is for you then I hope you can find the perfect home because it is a great buyers market right now.

Dave Ramsey is the man!!

 

[Rick O'Shay]

I just believe that the ONLY reason you should take money out of a retirement fund is that you retired. If you have to take funds from your retirement for a down payment then you cannot afford it. I would never take from retirement to go into debt. If you want to take a mortgage then have at least a 20% down to avoid PMI and get a 15 fixed mortgage with 0 points and 0 origination fees.
Second, I feel that buying single stocks are a big mistake. I would rather diversify in mutual funds with long track records than have a handful of single stocks.
These are just my financial beliefs. I know not everyone shares them so if that plan is for you then I hope you can find the perfect home because it is a great buyers market right now.

1) "I just believe that the ONLY reason you should take money out of a retirement fund is that you retired." I can see your point, however wouldn't it be a moot point if you simply replaced those funds with the $8k tax credit within a few weeks?

2) About the 20% - I am eligible for a VA loan, thereby eliminating the benefits of te 20%. Additionally, by the time I have the 20%, housing costs and interest rates will likely be higher. Besides, I intend to buy something well within my cash flow comfort zone.

3) I have the same views about debt as you for the most part, but a reasonable mortgage is in a different category. In addition to gaining equity, writing off interest payments, and living in the investment, you aren't pouring rent money down a hole.