Withdrawing my 457b money to purchase another rental
Hi Everyone,
I want to withdrawal my $88,000 out of my 457b retirement account to assist me in purchasing a rental property. I understand that I will pay 10% in penalty as well as 24% of state taxes on it as well, leaving me with $50-55K. Here is my current situation and why I think it wouldn't be too bad of a financial decision. Please let me know your thoughts.
I live in southern California, I make $200,000 a year. I currently own 3 large SFHs in the area. I rent out all three properties as well as the one I live in right now. I profit around $1,500-$2,000 a month off rental income after expenses. I also have a job with a pension as well. Property values total around 1.85 million and I owe 1.2 million on the homes.
I have $70,000 in cash currently and I want to take out my 457 money so that it will put me at around $125-130k to buy another rental home. FULL disclosure this next rental will not profit me much because of the high-interest rates but I want to keep it long term even If i am breaking even per month. I am doing it for mortgage paydown every year and appreciation as well.
Do you guys think I am crazy for taking all my retirement money out? I think having a good pension and 4 SFH in california will suffice in replacing not having my 457b retirement money anymore! I am 31 years old by the way.
I guess the big question that I have is this: are you still with the employer that you have the 457b plan at? I don't think you can roll one over if you are still with the employer, but if you've left you can roll it into a SDIRA and use that to purchase the property, thereby avoiding a withdrawl and the penalties associated with it. You did a good job of explaining your situation, but I would think I would have more questions before providing any firm advice.
Thank you for your response Doug. Yes I am still with my employer which is a fire department and I plan on staying with this employer for the entirety of my career (10-15 more years). So I unfortunately don't think I can transfer the funds into a SD-IRA like you mentioned. I would be taking the full hit on taxes and 10% penalty.
Quote from @Jeremy Willcoxson:
Hi Everyone,
I want to withdrawal my $88,000 out of my 457b retirement account to assist me in purchasing a rental property. I understand that I will pay 10% in penalty as well as 24% of state taxes on it as well, leaving me with $50-55K. Here is my current situation and why I think it wouldn't be too bad of a financial decision. Please let me know your thoughts.
I live in southern California, I make $200,000 a year. I currently own 3 large SFHs in the area. I rent out all three properties as well as the one I live in right now. I profit around $1,500-$2,000 a month off rental income after expenses. I also have a job with a pension as well. Property values total around 1.85 million and I owe 1.2 million on the homes.
I have $70,000 in cash currently and I want to take out my 457 money so that it will put me at around $125-130k to buy another rental home. FULL disclosure this next rental will not profit me much because of the high-interest rates but I want to keep it long term even If i am breaking even per month. I am doing it for mortgage paydown every year and appreciation as well.
Do you guys think I am crazy for taking all my retirement money out? I think having a good pension and 4 SFH in california will suffice in replacing not having my 457b retirement money anymore! I am 31 years old by the way.
I had a 457 with a fire department in SoCal that I left last year (early retirement, I was 36 when I left). My 457, you could not cash out till a person left the department. Did you confirm this? Cashing out when you separate is okay because that is allowed, but you through most as long as you are still employed you cannot (double check that).
Money now is better than money then is how I looked at it, and how I was able to justify the move of the money due to building a unit that will add that much more income on my passive income side of real estate.
Yes the next one will not cash flow unless a large down or you are out in the desert somewhere with low purchase price.
@Jeremy Willcoxson
It all depends on your REI goals and the strategy to get there. For what it's worth, I did that. I pulled 457b money early for an investment opportunity. I took the penalty hit and the tax hit. It was worth it. O have also taken the max loan out to buy REI, and paid myself back at 10%. Still worth it.
I used the 457b as a told to escape the employer bonds. It worked. Make sure your purchase has a strong potential to over come the costs of those to taxes within a short time frame. Or else leave it in the 457b. In my case, when I pulled the $50k loan from 457b, the purchase cash flowed even after paying back the loan. When I took the early withdrawal of about $200k (about $130k after taxes and fees), the purchase projected to cash flowed $20k/yr at COE, and had a baked in value of an additional $100k above the asking price at COE. If it were not those parameters, I would not have done it.
I'm currently researching a similar scenario for myself. If you're able to share, what did you end up deciding on and how did it pan out?