Self Directed IRA or Liquidate IRA

11 Replies

Hi, I have saved enough in my retirement accounts(I have rollover IRA's from old jobs) where if I wanted buy a property in a self directed IRA I could. However, I kind of don't want to wait till retirement age to reap the fruits of my labor. What would most people do? Invest in the SDIRA or cash out the IRA and use the proceeds to invest? I am a new member and aim to be a buy and hold investor. I live in the NYC area but if I invested here, would have to go with lower end properties. Thanks

Hi Les,

This was a tough one to wrestle with for me as I had contributed around $35K in my 401K at previous job.

Do I leave it and let it grow to possibly use it in the future or do I use it now?

Whats hard is that it does take a while to save up that amount of cash if your doing it the traditional way as we learned from school; save a little each month.

Originally I rolled it over to a self directed IRA and invested in stocks and actually did pretty good there, but again I didn't really have the money; it was in the stock.

The nice thing about real estate is the cash is in the property and to me I tend to be more invested, active, or feel more control over it than in the money being in Wal Mart or Disney etc.

Eventually I decided to cash it out and so far purchased 2 rentals and and working on getting them leased.  I hope it works but and I feel that it will.  

Of course I have will have pay the 10% penalty and the proceeds are taxed as ordinary income, but I can take depreciation with properties to offset it.

Hope this helps and wish you best of luck in whichever decision you decide on.

Real Estate is a game of big numbers. All investors eventually run out of cash. In order to scale beyond your limit, (wherever it may be) you need to learn how to raise capital. I say, hang on to your cash, and use it sparingly to combine with other funding partners. You can do this within your self directed IRA or outside. It doesn't matter. Put your skin in the game and leverage it with funding partners and bank debt to build larger projects.

Most rookie investors buy only what they think they can afford. That's a limiting belief. 

Go bigger and combine your efforts with a strong partner. That's the path to wealth.

Thanks. I've been socking away for retirement for a while and see the value of it but I kind of like the idea of if I see a great deal that I buy it and know that if I get tired of it and want to sell, I have a lot of cash I can use today. Hope your properties are doing well. 


Victor, Good point. My only worry is buying a place and getting a bad tenant and then worrying about cash flow. But, then again, if I leverage, the upside is much higher.

If you begin leaning towards the idea of withdrawing funds; consider a Roth conversion before you make any final decisions. You'll pay the taxes now on whatever amount you convert but you'll avoid the early withdrawal penalty, and receive tax free withdrawals later in life. You can even pay your tax from the IRA balance.

That being said, that's just one idea. Speak with a CPA or CFP that can actually help you determine what's really best for YOU.

Good luck!

I would not give up the tax benefits of the IRA. In addition to paying penalties, You will not be able to get the past tax benefits back. They are gone forever.

You don't build long term net worth buy taking such strong negative hits like that.

The best advice is from @Loren Whitney: covert it into a ROTH. You just need to know the rules of using a SDIRA. The best and cleanest way is to lend it as private money. If you don't have enough initially to lend for a deal, connect with a company who puts together funds from multiple SDIRA to create a "private bank" to lend funds as a private money lender. You can also invest your SDIRA into a private placement where you can earn 10%+ annual ROI. This link talks about using SDIRA to fund a private bank:

God Bless You!

Question: I live in NYC and manage a property in Brooklyn. I see a great deal that is way under market but has structural issues. It needs a cash buyer. I have enough in my retirement to buy it. Knowing the area, I could at least double my money on it in terms of equity when fixed up. My objective is to be a buy and hold. Thoughts?

Leave it in the SDIRA and take distributions if you need it as needed. If you take it all at once, you will likely have a higher percentage tax hit.

@Les There's always another deal out there. You may regret rushing and paying a huge chunk to the IRS.

@Stan, I hear you. I am struggling with this. It is likely a great deal and Brooklyn is red hot right now. Maybe I just do the SDIRA and call it a day or figure out what I want to do from there. Thanks!

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