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CoCoDave · 03-28-2014, 11:36 AM

Anybody Know If IRA Money Can Be Used To Purchase A Motor Home?

We're considering the purchase of a new-to-us motor home. We would trade the existing coach and pay the difference. We will not borrow the money to do this.

We are both over 65 but not yet 70.5. Seventy and one half is the age at which one must start withdrawing and/or paying income tax on the IRA balance(s) on a published IRS schedule.

While the sales person was presenting the idea of financing she emphasized that the current interest rates are very low in part because motor homes are treated like second homes.

That caused me to wonder if IRA funds could be withdrawn without characterizing the money as ordinary income for tax purposes. The only thing I could find is that $10,000 could be withdrawn for the purchase of a home (it did not say second home) if, among other things, one had not owed a home in the previous two years.

Again, we are not and will not consider borrowing money to do this. We were just wondering if there were a possibility and/or advantage to using IRA money. My sense is "no", but would be happy to hear about "yes" experiences.

Thanks

Tha_Rooster · 03-28-2014, 12:00 PM

Banks don't consider rv's homes I'd say you can withdraw early but you will pay taxes on it.

docj · 03-28-2014, 12:11 PM

We used IRA money to buy our MH and had to treat it as ordinary income in the year we did it. One thing to consider is taking the money out in installments in two different years. That way the tax hit can be spread out over two years.

chuckinthebus · 03-28-2014, 12:17 PM

We were told we could start withdrawing our own money at 59 1/2, but needed to watch how much we removed per year as to what tax bracket it could possibly bump us into. Talk to your accountant or financial adviser, then double check what they told you. No need to pay more in taxes than you need to, only if you want to.

docj · 03-28-2014, 03:08 PM

Quote:

Originally Posted by cnkinthebus

We were told we could start withdrawing our own money at 59 1/2, but needed to watch how much we removed per year as to what tax bracket it could possibly bump us into. Talk to your accountant or financial adviser, then double check what they told you. No need to pay more in taxes than you need to, only if you want to.

It's a common misconception that things such as lump sum payments "bump" you up into higher tax brackets. The increase in tax brackets only affects money earned beyond a cutoff point; it has no effect on the money earned up to that point.

If you withdraw money from an IRA and are over 59 1/2 years old there is no penalty; it is simply taxed as earned income. If you were to withdraw it all in one tax year it, no doubt, would increase your tax rate for some of the funds you withdrew. It would have no effect on the tax rate for your regular income. By splitting our withdrawals into two different tax years we were able to ensure that our tax rate only increased by one tax bracket and not two which would have been the case if all of the money had been withdrawn in one year.

Cat320 · 03-28-2014, 04:35 PM

The advice you are getting here is worth what it is costing you. Call your CPA or tax guru.

Ray,IN · 03-28-2014, 05:37 PM

Been there-done that. If the IRA money you withdraw exceeds a certain amount it not only(in my case) puts you into a higher tax bracket, it makes 65% of your social security income taxable too(that percentage may be as high as 85%, depending on total income) We have a CPA firm do our annual taxes, that was their statement to us.
The only way you will know what will happen in your specific circumstance is to consult an expert.

Medico · 03-28-2014, 06:30 PM

As already mentioned, you will pay income tax on the withdrawal as ordinary income. We just sold some mutual funds in our joint account (non IRA) to finance paying for a lot in Florida. In our case this was a much better option because I do not wish to pay taxes on my withdrawal yet.

wnytaxman · 03-28-2014, 07:38 PM

There is one other option that you might consider. You could finance your purchase and then make withdrawals from your IRA to make the payments. If you itemize your deductions the increase in income could be somewhat offset by the interest you are paying on the RV loan. Now, this will NOT reduce the taxability of your social security, but this method may reduce your tax burden as compared to withdrawing from your IRA to pay for the RV. This method will also reduce the amount of Required Minimum Distributions you may need to take at age 70 and 1/2 in total, but not the percentage required to be withdrawn.

paz · 03-29-2014, 06:33 AM

You can withdraw funds from an IRA to use any way you want, but as others have said, may have to pay income tax (federal and state, if applicable) on any amount you withdraw. If a relative large sum, it can push you into a higher tax bracket. That being said, the IRS considers an RV as a second home as far as being a valid interest deduction, but I don't know how they would characterize an IRA withdrawal for an RV.

As the RV sales person said, interest rates are currently low. Depending on how your IRA is invested, the interest rate on the RV loan might be lower than what you could expect earn if you leave the money in the IRA, although the return on your IRA is probably not guaranteed.

If you own a home and have enough equity, consider a second mortgage to finance the RV and leave your IRA intact. The interest rate on the home loan should be less than on an RV.

CoCoDave · 03-29-2014, 07:11 AM

Thanks, guys, for the responses. As mentioned in the OP, borrowing is not an option. We are 100% debt free and intend to stay that way.

We have non-IRA money to do this deal. We were just wondering if anyone had found a legal way to avoid getting an IRA withdrawal classified as ordinary income when using the proceeds for the purchase of a motor home.

The consensus here agrees with my understanding that the answer is "no".

Again, thanks for taking the time to post your thoughts and suggestions.

VanSully · 03-29-2014, 07:12 AM

In addition to income taxes, if a couple has a MAGI above $170,000 then the monthly premium paid for medicare increases.

TLGPE · 03-29-2014, 12:25 PM

One more thought is that you CAN borrow money against your IRA. The security is your own money, so you're really still debt free.

Tom

Superslif · 03-29-2014, 01:12 PM

As far as a withdrawal from a IRA, is there a difference between a withdrawal from a Roth IRA, 401-K or a traditional IRA. Roth additions are "after tax" monies. Your Traditional IRA is pre-taxed monies. I was under the assumption Roth IRA's withdrawals you didn't pay income taxes on after age 59-1/2)?

401-K's and traditional IRA's you paid income taxes on after the age of 59-1/2.

I have funds in all three, but my issue is I plan to retire at 53 or 54, so I'll have a small funding gap for 5 or 6 years, until I can withdrawal from any of these three if needed.