Broker Check

Chicago Office

350 N Orleans St,

Suite #9000n
Chicago, IL 60654


March 13, 2019

As the spring buying season gets underway I frequently receive the following question from a first time home buyer or two. I get asked if IRA assets can be used to make a down payment for a home purchase. The short answer is yes, for first time home buyers up to $10,000. However, before taking such a distribution it is worthwhile to consider the long term cost of such a decision. Run some numbers to see how the decision will impact your long term savings and specific financial plan. If you have limited retirement savings and do not contribute sufficiently to a retirement savings account, such a distribution could be extremely costly.

If you are 33 years old, planning on retiring when you are 67, taking $10,000 out of your IRA could cost you $99,781 (Assuming your investment was held for 34 years and those investments earned 7% per year) or $4,500 - $6,000 per year of retirement income. Depending on your situation, goals and resources it might be worthwhile to liquidate, or it may be a bad idea.

This example highlights the importance of having alternative savings accounts outside of retirement accounts. Retirement accounts are built to provide value for you in retirement after age 59.5. Savings, checking and money market accounts may be better suited to save for purchases you wish to accomplish in the next 5 years. A taxable brokerage account could serve as a way to save for goals with a 5-15 year time horizon.

In closing be careful and think twice before compromising your retirement accounts to make a purchase. Run the numbers and consider the long term cost.

This is a hypothetical example for illustrative purposes and does not guarantee future performance. Certain restrictions and penalties may apply to distributions.

Kit Lancaster is a Financial Advisor and Certified Financial Planner Professional from Chicago, IL. He enjoys working with young professionals, families and business owners who have a desire to be financially successful and desire courses of action, education and perspective to aid them in accomplishing their financial goals. Kit holds regular educational events in Chicago and online. If you would like to schedule a no obligation consultation or receive more information on his next event please contact him by phone, email or the link below.

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Trk # is 1795816 and dofu is 5/2017.