Options for Cashing Out Retirement Accounts?

Question

Hi, we have some retirement accounts we're considering cashing out for real estate investing purposes. We have a 401K, Roth 401K, Roth IRA and a Traditional IRA Brokerage account. What's the simplest and cheapest way to get the money out?

We can use a HELOC on our personal residence and cash from said accounts to invest. Since it's a first-time property, we'd only borrow from the HELOC what the retirement accounts could pay back.

SDIRA is not a feasible option from my research. I want the immediate cash out from flips which SDIRA's do not support. Tell me where I'm wrong.

Thanks!!

Heidi Emmendorfer · Answer

@Michael Metzger Thank you!! I can’t wait for the meeting with the CPA.

Michael Metzger · Answer

@Heidi Emmendorfer You can typically borrow $10,000 or 50% of your vested account balance, whichever is greater, but not more than $50,000. I would still highly recommend talking with a tax accountant first.

Heidi Emmendorfer · Answer

@Michael Metzger Awesome! That might be the better route to go. Do you know what expected collateral is?

Michael Metzger · Answer

@Heidi Emmendorfer It depends on the plan guidelines and plan administrator, but more in line with HELOC rates.

Heidi Emmendorfer · Answer

@Michael Metzger What’s a ballpark interest rate one could estimate to pay? Is it closer to hard money rates or HELOC rates?

Michael Metzger · Answer

@Heidi Emmendorfer A loan against a 401(k) is a viable option, but you do have to repay that distribution with interest back in. Flips often can be delayed for longer than expected, so the repayment of the loan has a timing issue. Also consider that flips are also taxed at ordinary income, which can provide tax challenges as well.

I would echo what others are stating and make sure you speak with a tax accountant, as this seems like tax sensitive  situation you are going for

Heidi Emmendorfer · Answer

@Kyle O. Great idea on talking with a CPA. Call me naive but I went the plan administrator and financial advisor routes which have not been helpful so far. I’ll try a CPA.

Heidi Emmendorfer · Answer

@Dmitriy Fomichenko Thank you. I appreciate your feedback.

Kyle O. · Answer

I think if you set up a solo 401k at E-trade you can do a loan against your 401k. You can fund that by rolling over another acct. If it is your first property I guess this is prob not an option. I'd check with your accountant on that though. The penalties are no joke on the trad withdraws. If you make anymore roth contributions I always save my 5498s and add them up each year. There are other roth rules to do that.

Dmitriy Fomichenko · Answer

@Heidi Emmendorfer

You really don't have options here, if you wish to take distribution.

Distributions from 401k and Trad. IRA will be taxable, and you would have to pay penalties for premature distributions.

Roth: contributions would come out tax-free, but the earnings will be subject to taxes and penalties just like traditional funds. Get with your CPA to calculate the tax implications before pulling the trigger.