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Become The Bank! Use Your IRA (401K), RRSP and TFSA to Invest in Real Estate

Buying a home can be a big step towards future financial freedom, the problem is saving for a down payment which is usually a tough thing to do.

However, you might be able to speed up the process if you already have some cash in your retirement account. As the real estate market continues to rise, some investors are hoping to put their RRSP in for a real estate investment. While they’ll find some limitations, there are as well several options they should consider to succeed in real estate investing.

Individual Retirement Accounts or 401K plans are long-term savings accounts offering several tax advantages for those who can comply with various internal Revenue service regulations. While most financial firms will not provide you the chance to invest in real estate with your IRA due to more paperwork needed, IRS does not forbid that. You are given the chance to transfer or take loans with the help of your 401K to access the funds for investment. Careful planning while considering every procedure with either type of retirement plan will result in little or no tax ramifications.

How exactly can you use your IRA for a home down payment?

The IRS was put in place to prevent early withdrawal from your retirement account by implementing a 10% penalty on every withdrawal before you turn 59 ½. Among the different types of retirement account, withdrawing from the Roth IRA will cost least in tax penalties. This is due to the ability to withdraw contributions at any time without taxes or penalties. More to that, after having the account for over 5 years, you’ll be given the ability to make withdrawals of up to $10,000 without a 10% tax or penalty.

You can as well follow take into consideration the following guideline to purchase your retirement rental property through the IRA.

  • Create a self-directed IRA via a reputable company: In case you already own an existing IRA, it is possible to transfer funds into a self-directed IRA without taxes or penalty.
  • Determine if you have enough funds to handle a real estate purchase: In a scenario where you’re short on funds, it is possible to either finance the purchase through a non-recourse loan or get money with other investors. Consult your IRA custodian, your accountant or the Internal Revenue Service for rules and regulations regarding shared investment and financing.


  • Identify what property you want: As stated by the IRS, you may purchase any form of real estate using funds from your IRA. However, you are allowed to purchase just properties for investment purposes. This implies you can’t personally use the property or rent it to a relative. However, you are given the chance to transfer the property to your name once you turn 59 ½ years old. This implies you can go for that beachfront property in Florida or anywhere else and rent it out until you go on retirement.


  • Pay property taxes, insurance, and maintenance fee via your IRA: You may think of renting out the property to generate income, this income must be returned to your IRA. More to that, the property cannot be managed by you. You must hire someone like a real estate agent or a property manager to handle the day-to-day tasks.

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