How to Buy a Car With an IRA

IRAs are usually one of the largest monetary assets a person can have. This makes using money from your IRA an attractive concept. You may want to use the IRA to pay for the down payment for a car or to buy the car outright so that you don't have a monthly bill. While pulling money out of an IRA involves only filling out a form, you need to consider the tax consequences for using your IRA for a car purchase. The factors to consider with be your age, the amount you are withdrawing and your annual income.

Ask the car dealership or bank run a financing plan for you based on several down payment amounts. Look at the total costs of a loan over the course of paying it.

Contact your tax advisor to see how your annual taxes will be affected by taking money out of an IRA. You must be age 59-1/2 to pull money out of a traditional IRA without penalty and you must hold a Roth IRA for at least five years to not be penalized, according to the IRS. All money taken out of an IRA will be added to your annual gross income, and a ten percent penalty is assessed if it is not a qualified distribution.

Compare the cost of the loan determined in Step 2 and compare it to the tax costs you will incur for removing the money from you IRA. Determine the amount that you will withdraw based on this. If the tax consequence is higher than what you will pay in financing, finance a higher portion of the car. If your tax consequence is less than what you pay in finance charges, then take the money out of the IRA and buy the car outright.

Fill out the IRA withdrawal form with your IRA custodian for the amount you wish to withdraw and deposit the amount in the account from which you will write the check for the car purchase. If you are not taking a large sum out, you can set up a monthly withdrawal that is deposited into your account for the amount of your car payment.