Retirement Account 10% Penalty to Access Real Estate

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Retirement Account 10% Penalty to Access Real Estate

Isaac Hayes
Investor · Austin, TX · Member since 2020 · 34 posts · 30 votes

I plan to purchase a four-plex in Columbus, Ohio within the next two months. I had planned on liquidating a standard brokerage account for the down payment. However, because I plan to retire and live off passive income within the next 5 years (age 33), I don't like the idea of money sitting in retirement accounts gaining returns that are inferior to what I could get if invested in buy and hold real estate while not being accessible until ~ age 60. In all cases I've found, the math works out that it makes more sense to invest post tax dollars in real estate rather than pre-tax dollars in the stock market (article links below). Because of this, paying taxes and a 10% penalty on my retirement accounts today will actually allow me to retire on passive cashflow sooner than if I kept the money in the retirement accounts (even if I invested in real estate).

Does anybody disagree and think that the money in my retirement accounts should remain there until ~ age 60 based on my goal to retire by age 33 on passive income.

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Peter MckernanBusiness Member
Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
5y

@Isaac Hayes a lot of people and investors here have the struggle back and forth on what to do with their retirement accounts once they are awhile into contributing. I have always been the advocate for increase your Vertical income, stop paying into your retirement accounts if that is what you want to do leave it where it is then take that increase vertical income by side hustle etc. and put it into REI.

I have a good amount of money placed in retirement accounts and hold that without getting hit with taxes and 10% because the taxes with the 10% would be significant for me. The benefit now may seem nice of getting that money, what could you do in the next 6 months to year that will increase your income for a life time and have higher returns, and the ability to grow massively instead of singlehandedly focused on something that would lose you money now and later down the road. 

The best process that I would do would be reap what you sow in the next 6months to year. Just some thoughts on it and how I have invested throughout the years.  

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  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    5y

    @Isaac Hayes a lot of people and investors here have the struggle back and forth on what to do with their retirement accounts once they are awhile into contributing. I have always been the advocate for increase your Vertical income, stop paying into your retirement accounts if that is what you want to do leave it where it is then take that increase vertical income by side hustle etc. and put it into REI.

    I have a good amount of money placed in retirement accounts and hold that without getting hit with taxes and 10% because the taxes with the 10% would be significant for me. The benefit now may seem nice of getting that money, what could you do in the next 6 months to year that will increase your income for a life time and have higher returns, and the ability to grow massively instead of singlehandedly focused on something that would lose you money now and later down the road. 

    The best process that I would do would be reap what you sow in the next 6months to year. Just some thoughts on it and how I have invested throughout the years.  

    The McKernan Group4.958 Reviews
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  • Bonnie LowPro Member
    Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
    5y
    We're in the same boat, though much closer to retirement age than you are. In addition to the concern about the 10% early withdrawal penalty, we also have to consider that those dollars from our 401k will now be taxed so they add to our W2 income for the year in which we take the withdrawal. If you're not in a high tax bracket when you take the withdrawal, it may not matter to you. But in our case, where my husband will retire before me and access his funds, we're weighing the impacts to our federal taxes because we'll still be in a high tax bracket because of my income. Just something else to consider.
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  • Remington LymanBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
    5y
    Originally posted by @Isaac Hayes:

    I plan to purchase a four-plex in Columbus, Ohio within the next two months. I had planned on liquidating a standard brokerage account for the down payment. However, because I plan to retire and live off passive income within the next 5 years (age 33), I don't like the idea of money sitting in retirement accounts gaining returns that are inferior to what I could get if invested in buy and hold real estate while not being accessible until ~ age 60. In all cases I've found, the math works out that it makes more sense to invest post tax dollars in real estate rather than pre-tax dollars in the stock market (article links below). Because of this, paying taxes and a 10% penalty on my retirement accounts today will actually allow me to retire on passive cashflow sooner than if I kept the money in the retirement accounts (even if I invested in real estate).

    Does anybody disagree and think that the money in my retirement accounts should remain there until ~ age 60 based on my goal to retire by age 33 on passive income.

    https://financialfreedomcountd...

    https://www.fortunebuilders.co...

     I started purchasing multifamily rental properties when I was 23 in Columbus, Ohio and it appears to have turned out well. I would highly recommend doing the same if you want to create massive amounts of wealth and unlock financial freedom.

    [email protected]614-541-8475Podcast Guest on Show My Job Laid Me Off, So I Replaced My Salary with Rentals
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  • Clay Boykin
    Real Estate Agent · Columbus, OH · Member since 2021 · 98 posts · 101 votes
    5y

    @Isaac Hayes This is a great goal. Honestly, the best that their is in this business. I would recommend putting your retirement funds to use. That way your Capital Gains tax is all figured out. I've ran into some people that take their 401k and put it towards investment properties through syndication. I usually base my goals 5 years out. Everyone's different with different perspectives, which makes it difficult to base someone else's goal as reasonable. Definitely consider investing in some flips, Airbnb's, etc. in Columbus. The returns are very reasonable. Feel free to reach out to me. Other than that, Happy Investing!

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    4y

    I personally took money out of my retirement account and invested it into real estate. I have zero regrets of my decision.

    Below are some of the reasons that I made my decision.

    1) I purchased my property for 10% below FMV(appraisal vs purchase price).
    That means any penalties that I paid was made up for already on the purchase
    2) I don't like that my money was tied up and felt restricted until a certain age.
    3) I believed my appreciation / cash flow from real estate would be greater than the return in a retirement account(Not self-directed)
    4) Real estate investments can provide some tax benefits so you can still think of it as a 'tax-sheltered account'

    Best of luck!

    [email protected]917-280-8544
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