PFRDA

Pension question involving Real estate?

My husband recently left a job with a city police department for a state one. His new department recognizes his time served, and he does not have to contribute to the new pension system. Previously, he had, and is now entitled to get his other money back, after taxes and a penalty for pulling it out early of course. We were looking to use the pension money as a down payment on a home. My question is; is their some way to avoid any of the penalties usually involved with withdrawing pension money early, since the money is being deposited directly for a real estate down payment? There was mention of State and Federal taxes that would be owed as the money was invested pre-tax, and an additional 20% penalty because of out age (early 30's.) Any help would be appreciated. Thanks! By the way, this is in New York State, if that helps.

Public Comments

1. I do not believe, that the IRS will let you of the hook, because you buy real estate. I never heard of it.
2. I do know that if 100% of an IRA or 401k is used to purchase a property, it is considered an investment that earns money and would not be subject to early withdrawal or taxes. The IRS treats it the same as if you used the money to but stocks or a mutual fund. I used this advantage to purchase a vacation home to rent out and produce income. I has checked it out with my CPA and I haven't been questioned yet. I recommend that you speak to a good CPA specializing in real estate transactions.
3. You may wish to take a look at moving the proceeds from your current retirement account into a Self Directed IRA which you would then use to purchase the real estate (assuming that you are doing so in order to earn additional income). If you merely wish to use the funds to purchase a home to live in, you may require some additional advice. As always, check with an experienced accountant or attorney in these matters.