Liquidating a roth ira
With these self-directed accounts, you can invest in anything.
The one limiting factor is that you cannot get a conventional recourse loan with your 401k.
That means that the low-down payment, owner-occupied loans are not available. You can give yourself a loan from your 401k for the lesser of ,000 or 50% of your 401k’s balance.
In other words, you CANNOT house hack with your 401k or self directed IRA. Despite what I said above, you can still use your 401k to house hack. This can help with your down payment on a house hack.
Here’s a great calculator I found that tells you how much you could put away in each type of plan for your given income. After age 50, you can put K per year into a SEP-IRA. You shouldn’t borrow from either, but at least the option is there in case of catastrophe. SEP-IRAs must be taken into the pro-rata calculation when converting non-deductible IRAs to Roth IRAs. This not only allows you some tax diversification benefits, but also allows you to save more money in a tax-protected manner, since after-tax money is worth more than pre-tax money. Although most states protect IRAs and 401Ks equally from creditors, at least two (MN and SC) give additional protection to 401Ks over IRAs. Yet I have used a SEP-IRA several times and have never opened a Solo 401K. You can always roll the SEP-IRA over into a solo 401K if you change your mind.
Most financial advisors and older folks will tell you that it’s better to contribute to your 401k and let it grow tax-deferred.
In the first part of this article, I show you the analysis I performed comparing what your annual returns would need to be as a 25-year-old taking out your 401k to start investing in real estate.
Age 60 seems very far away, so you are likely tempted to take that out now and use it to expedite your journey towards financial freedom—especially after seeing the two tables below: Given the assumptions mentioned above, the 25-year-old will have to earn 8.50% annually on his/her liquidated 401k to achieve the same type of returns as they would on their current 401k. Absolutely, especially with the wealth of knowledge here on Bigger Pockets and the four wealth generators of real estate. Not only that, but using what you have left for a down payment will be a double kill. In the analysis above, we assume your 401k is handled by a financial advisor and is diversified amongst a plethora of mutual funds, index funds, bonds, stocks, etc. The analysis suggests that despite the tax-deferred earnings, there is a high probability that you can attain a better annual return on a liquidated 401k (8.50% ) by investing it yourself.
There is a high probability that this will either prevent you from taking out a conventional loan or at the least increase the cost significantly. Fortunately, there is a way for you to invest in these same high-yielding assets (i.e.
This is for investment property only so most lenders will require at least 15% down and sufficient cash flow. You will be paying your solo 401k interest of approximately 4.0%.
This is certainly not the best use of your 401k money, but if you do not care much about the balance of your 401k and are looking to invest in real estate to achieve early financial freedom, this may make sense.