Can I invest my retirement money in my own mortgage?
September 25, 2006 11:02 AM   Subscribe

Can I invest my retirement money in my own mortgage?

Is it possible for me to invest my own retirement funds in my own mortgage? My wife and I have something like $200K in retirement accounts. Our mortgage is $320K or so. Can I somehow invest the money in my own mortgage, pay off the bank, and then undertake to pay myself back (with interest, of course)? Without paying the IRS a huge penalty?

I know that you can borrow up to $50K from retirement accounts, but as you can see from the numbers, that's just not going to do it in this case.
posted by portabella to Work & Money (2 answers total)
 
Assuming you are talking about tax sheltered retirement accounts, like a 401K or 503B, the answer is almost certainly no. You are limited to whatever options your plan provides. A self-direct IRA may have more options, but will have its limits, which will include that any investment must be at "arms-length," which a mortgage to yourself definitely wouldn't be. And as an example you couldn't lend the money to your brother-in-law to open an aquarium store, either.

Plans vary on how much you can borrow out of them; some are 50%. You could definitely borrow up to the limit, pay down your mortgage, and then pay back your plan instead of the bank for that portion in accordance with your plan's borrowing rules. The interest you pay your plan on the loan would not be tax-deductible, but then again, you're putting it into your own pocket, so you're coming out ahead.

Also, you can not borrow against your plan, ie., use it as collateral; the IRS considers that the same as withdrawing the money.

All in all, you are best off staying the course. If you borrow money from the plan you're losing the investment growth while it is out, and partially paying back your mortgage will not lower your mortgage payments, so your total monthly cost goes up. Keep in mind that your mortgage interest is tax deductible so that debt is costing you only around 4% aftertax, probably, while your fund should be growing at 6-8% if invested right (long term). It would not make sense, even if you could, to use an investment earning 8% to pay off a debt costing 4%.
posted by beagle at 1:17 PM on September 25, 2006


As I recall there was an article in the chronicle about leveraging selg managed IRA's to do something to this effect....

Make with the Clicky.
posted by iamabot at 2:58 PM on September 28, 2006


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