Trading Retirement Dollars for a Mortgage

Dear Alpha Consumer,

I would like to use money in my IRA retirement account as a loan to buy a house. It would be a way to pay the interest to myself (to my IRA), rather than to a mortgage company. Is this possible? Could it be a rental property, or does it need to be my own residence?

To get the answer to this question, I contacted Pam Hamrick, vice president of LendingTree.com. She tells me the answer is yes, you can indeed do this, but with some restrictions and not quite the way you described. The maximum amount you can use from your IRA is small enough that it won't cover your entire mortgage, but it can at least help you get started. Here's what you need to know, according to Hamrick:

• The IRS allows people with traditional IRAs to withdraw (without penalty) up to $10,000 per individual or $20,000 per married couple toward what it considers the purchase of a "first home."

• To be deemed a first home, it must be a principal residence. Individuals or couples must not have owned another principal residence in the previous two years.

• This IRA money can also go toward the purchase of a home for the IRA owner's child, grandchild, or parents.

• If the IRA is a traditional one (as opposed to a Roth IRA), the withdrawn amount will be subject to taxes.

• The withdrawn money must be used within 120 days, or it is subject to penalties.

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