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Sign up for this week's free webinars hosted by experienced investors or view previously-held webinar recordings in the Archives. Are you a wholesaler, a rehabber, a landlord, or even a turnkey investor? View all Local Real Estate forums. Has anyone cashed out their k to try and get a greater return on their money and use the proceeds to invest in RE?
I have contemplated doing this. More restrictions there which may limit your potential versus just taking the tax hit and going balls to the wall, but I haven't delved too deeply into that comparison. One of our BP members Greg B. Daniel Thomas If you no longer work for the Employer who the k was with you can roll it over to a self directed IRA and use it to invest in real estate. This is what I did. If you are still working for the employer then you can borrow the money and essentially pay yourself back with interest.
You will be giving away too much money. You could consider rolling over part of it into a ROTH SDIRA this will allow you to pay some tax on the money and move it into an account that you will no longer be paying any tax on. I strongly suggest in most cases the loan from the k. As you can deduct the interest you are paying yourself.
It would take some significant tax planning to split the tax hit. In which case you will lose a lot more than you should allow. The first step to making money is don't lose money. Yes I did do this in and never looked back. Cashing out is not for everyone and I would not do it if you don't have a viable plan. Here is my argument about the k thing You will pay income tax on the money at some point in time. The pitch was that you would be in a lower tax bracket upon retirement.
Maybe, maybe not, but you will still pay income taxes on the money eventually. So the argument about paying the income taxes is a non issue for me. Agreed, it is a penalty, but it is surmountable. The money is supposed to grow for decades. The actual growth will depend on your choice of investments. You may even break even over the decades or LOSE money.
The fund manager that you pay for is not looking out for your interests. Your finances are not something you can give to someone else to trust to manage. That was a tough lesson for me. Now, while you are putting you income into the k for decades with the possibility that it may lose value, the k is NOT putting money into your pocket each month.
You will not enhance your standard of living from a k. What if I took that same money and put it into something that could pay me now AND pay me later? It was a no brainer to me. I paid the penalty and income taxes and invested into income producing property.
Yes, my real estate investments may lose money occasionally. However, I don't have to pay someone else to lose my money if it happens. I can take full responsibility and not have to rely on someone else to try and sell me something that will only benefit them.
My wife has a b. We stopped contributing years ago. It has been invested in domestic and international growth equities for about 25 years now. Much like the poster above, my wife and I cashed in old k's. It wasn't our entire nest-egg, but the deal worked for us. What's the actual return on your k in a "safe" investment? Now we're netting that every month, and call it skill or luck, the properties have increased in value significantly.
Oh, you mean when "safe" "professionally managed" investments lose half their value in a 90 day period of time? My Vanguard statement wasn't nearly as satisfying. Even with both accounts there, the statement was only perhaps ten pages or so - not much of a fire from those You will be required to work more or share expenses. The thing is you ask your question as if the k is guaranteed.
You have no downside protection. You cannot get out if things are going bad. You can shift investments. I had lunch the other day with a former agent that had things go south for him, lost all his rentals including his house and now rents a apartment with his family. I have actually been thinking of doing this. I have an old k from a job I had 3 years ago.
Will the remaining balance be added as ordinary income or does it get hit at its own tax rate? I am self employed so I tend to do very well on taxes. When you hear of landlords losing their portfolio, its typically because they paid way too much for properties in the first place.
I think you can really limit your downside risk by making educated purchase decisions. Almost everyone who cashed in an IRA or k seems to have done so to invest in real estate. So you have the best of both worlds. I personally lend out of both my k's and my IRA , because it is easier to manage than real estate. I don't hold real estate in either one, I hold it in individual LLC 's. Steven Hamilton II had a good breakdown of the cost of cashing in.
I am doing very well with the six properties I have. I thought since I will have a pension it might be best to cash out the k and pay off all the mortgages and then pay cash for a house every two to three years with the rents from the properties. Seems like this may give a better income in retirement then the k would.
Ann Bellamy has hit the nail on the head why would you pay a large tax on cashing out a k when you can invest by rolling over to a self directed IRA. The tax you would pay would then remain available to invest. Daniel Thomas If you can roll over the k you could purchase real estate now in a self directed IRA and buy property while it has substantially declined.
You could also use the net income to buy additional properties as they are earned. If you are still working you can accomplish similar results by borrowing from you k and using that to invest in real estate.
IMO these are much better alternatives to cashing out and taking a substantial loss before you even start to make money. I question the wisdom of "hoping" your taxes will be lower in the future. I hate to see so many people stuck in a "loop", afraid of paying taxes, even on fairly insignificant amounts of money, when there are better options out there.
It was an extraordinary deal, in an extraordinary time, and I probably couldn't do another like it today, without months of work, and a pile of luck.
But I don't need to score like that every day. Just a few deals like that can make retirement possible. If you've got more time than money, sometimes you have to break the "rules". Depending upon the amount of your withdrawal you will add the FULL withdrawal amount to your income. You may want to consider a Roth account as you can pay the tax now, invest in real estate, and withdraw the principal worth tax free after enough appropriate 5 year time after conversion has passed.
Daniel Thomas , I guess the point here is to think long and hard about it, as depending upon the amount withdrawn you could be looking at a substantially higher tax bracket plus penalty and possibly state taxes. I'm lucky to be in a state that does not tax retirement income. As I said before the Roth Accounts can help stimulate growth especially in a positive income situation.
You can also put yourself in a situation where if you withdraw principal you will pay no tax on it after you meet the 5 year rule on conversions. You will then be able to withdraw those funds tax free. You can then withdraw amounts designated to principal after the 5th year after conversion tax free.
Withdrawals on earnings will only be subject to an early withdrawal penalty. You will want to talk with your accountant to figure out the details that work best for you and your goals. Why would you 1. Why would you invest in something you don't understand? Why would you just stick with a plain boring fund. If your money didn't grow it is because you didn't work with it. The other half is compounding effects You don't tax-defer any gain i.
Without going into all the math, here are the results And, if the first half of the pitch plays out your tax bracket is lower in 35 years , you could end up with closer to 4 times your money.