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We have recently considered buying another property closer to family. Since selling our current home may take some time we were thinking we could possible use a retirement Roth account to come up with purchase price rather then take a bridge or other loan. We also do not have enough after tax money in regular accounts to cover the total purchase. We have been here for many years so it meets tax deduction for primary residence sale. I am thinking perhaps some other folks on this forum have considered this.
It seems like this may be a good solution to avoid borrowing money for some undetermined period and paying loan costs. This also does not raise taxable income as this Roth money has already been taxed and has been in place longer then 5 year. The money from the eventual sale of current property can then go back to replace monies used in the purchase of the new place. We also plan to do more Roth conversions into the future as planning suggests.
Are we missing something about this Roth use or is another way suggested to raise the money? I realize this does use some Roth money that is an advantageous account for growth but wondering what other items I may have missed.
One idea that maybe won’t work for you but might work for others is what’s called a box spread— four options trades that together result in effectively a loan against the market at close to treasury rates. I don’t think you can trade options against an IRA though, so you would need assets in a taxable account. You wouldn’t have to sell the assets in the taxable account, but you would need assets in a taxable account.
Another option to consider, if you have a brokerage account, is a security backed line of credit. This is similar to a HELOC, but using your brokerage account as collateral. Schwab has been offering this for 15+ years while Fidelity started recently. This option could be in conjunction with withdrawals from your Roth. The interest rate is higher than a HELOC but lower than a personal loan. Your income is generally not an issue.
You’re facing a dilemma that many will face. If you want to buy a place before selling your old place, it’s all going to come down to cash flow. In your case, (1) you don’t have the funds in a taxable account to purchase the new house outright; (2) you don’t have the funds in a taxable account for an SBLOC; (3) you probably won’t be able to get enough from a HELOC although you didn’t mention specific amounts; (4) you probably won’t qualify for a bridge loan if you’re retired without work income although you should look into it; (5) you can’t replace the money in the Roth unless it’s very short-term and you mentioned it might “take a while” to sell your current place. Given all of that, you’d probably be better off renting in the new area, selling your current home, and then using the proceeds to buy another home. I don’t see how your cash flow is sufficient otherwise based on what you’ve described.
Why not open a self-directed Roth and rollover an amount equal to purchase price and closing costs of the new home into the self-directed Roth, then go buy the new home in the Roth? This would preserve the Roth “investment” as once you withdraw it, the tax-free compounder is gone forever. At least this way, the Roth grows as your home appreciates, and if you ever turned it into a rental, tax-free rental income. Just a creative thought.