My family and I currently live in a townhome. We are interested in buying a single family home which will be our primary residence. We would like to keep this home and rent it out as an investment property. I have read that you can use funds from a self directed IRA to purchase a home as an investment property. What I want to know is- is it possible to purchase the new home with our own funds, but then begin paying the mortgage on THIS place with the IRA? Do I have to buy this house from myself in order to do that?

What about borrowing against either a self-directed IRA or against my 401k for the purchase of the new primary residence, how does that work? My understanding is that I can borrow (up to $50,000) against a 401k for a home purchase, but I must pay it back (with interest) within 5 years or possibly 15 years depending on ... what?

  • Not strictly on topic, but the Canadian equivalent, RRSP, can make a mortgage loan to the RRSP owner, as long as it is at market rates. Jan 13, 2022 at 21:19
  • Just to put a finer point on 'borrowing against', it's is considered a disbursement of funds for any 401(k)/IRA amounts you use as collateral for a loan. You are probably referring to 'borrowing from' a 401(k), which D Stanley has a good response in regards to. As a side note, 401(k)/IRA accounts are generally protected from creditors when seeking personal recourse for a liability.
    – Ryan
    Jan 13, 2022 at 23:58

2 Answers 2


The rules for self-directed IRAs are pretty restrictive. Basically all of the investments and cash flow must stay within the IRA, and they can't be used for personal (or immediate family) benefit. So for example you can't live in a house that's owned and paid for by the IRA. You can use it to purchase investment property, but again all cash flows must stay within the IRA (otherwise it would be considered a disbursement) so you can't take the rental income or any expenses out of the IRA, or even let family members rent it. You couldn't even get reimbursed for maintenance that you do yourself.

As far as borrowing, yes you can borrow up to 50% of a 401(k) (provided that your 401(k) allows for loans), but the first main drawback is that you lose out of future gains on what you're borrowed in exchange for the fixed interest you "pay yourself". So you might get lucky and borrow before a market drop, or unlucky and miss out on a bull market. The second is that if you leave your job you might need to pay back the loan in full within a certain period of time (the grace period depends on the 401(k) provider).

Note that 401(k) providers are allowed but not required to provide for loans. And can allow for up to a 5-year repayment period, or longer for the purchase of a primary residence. But they are allowed to require a shorter payback period (including due in full on resignation or termination).

Per the IRS, loans are not permitted at all against IRAs or IRA-based plans. If a loan it taken out against an IRA, it is treated as a disbursement and subject to tax and penalties.


IRAs cannot deal with their beneficiary (see prohibited transactions). Using the Self-Directed IRA to pay off a mortgage for which you personally is responsible would disqualify your IRA. Alternatively using the IRA to purchase the property from you so that the IRA can be put on the mortgage would be self-dealing and also disqualify the IRA.

You can't borrow against IRA. You can take a loan from 401k, if the plan allows it, but these are usually limited in time and amounts (usually up to 50% value for up to 5 years), and are payable on demand if you leave your employer. That also means that the loan money won't be invested in the mean time while you're paying interest to yourself. That interest also wouldn't be deductible. Borrowing from 401k, IMHO, is very risky and I'd advise against it.

You could withdraw up to 10K from your IRA/401k for first time home purchase, but it doesn't look like you'd qualify since you already have a home.

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