How can I, an ordinary guy, buy a vacation home with my retirement account, you say? Well, there is a way if you already have an IRA and your adjusted gross income is less than $100,000 a year. You can convert your present IRA to a Roth IRA and use the money from the Roth IRA to buy your dream vacation or retirement home.

While you can't live or vacation in the home while its owned by your retirement account, you can stay there for a couple of weeks a year to make repairs or do maintenance. You can even pay yourself for the work you do on the house out of your IRA account. You can rent out the home and put all the income inside the Roth IRA.

Then when you retire, you can have the house reappraised at hopefully an increased value, and pull it out of the Roth as a tax-free transfer to yourself. No capital gains or income tax on anything the house earned for you while you were renting it! Now you can move into the house, live there for a
couple of years, then sell it and qualify for your $250,000 ($500,000 for couples) capital gains exclusion on any gains after that.

Is it that simple? Well, like anything else, there are some downsides and cautions you should discuss with your IRA fund manager or a knowledgeable tax attorney before proceeding. You want to make sure you don't endanger your Roth IRA tax advantages. But this is definitely do-able and it could offer a nice alternative to a somewhat volatile stock market for investment purposes. If any of you decide to purchase a vacation home in Hawaii, please think of us if you need someone to watch the place for a couple of weeks.