What to do with my pension.

Question

I have been working for the municipality I live in for 4 years and am leaving my position for a more lucrative position elsewhere. I'm looking to take my pension contributions with me to invest elsewhere as well. My questions is what do you think is my best option? I don't want to just withdraw it and loose half of it to taxes. How can I reallocate my money with no taxes?

Jaron Walling · Answer

Real talk what employer gives a pension after 4 years? Mine is 10 and most companies don't even have one.

Just roll what ever you have into a Roth IRA or whatever the new employer is offering. Do NOT WITHDRAW the money. If you're young these are important years to build a retirement fund and start the compounding interest earning you more money on what you already have. I have a friend that worked at Lowes for 6 years, full time, and cashed his out. He took a massive hit and bought a new Jeep. Don't be that guy.

Mitchell Flaherty · Answer

@JaronWalling thanks for the info.

Mitchell Flaherty · Answer

I work for the City of Milwaukee. Vested after 4 years here. I already have a couple of 401k's, I was looking for something more liquid. Though I hear jeeps are nice I was hoping to put the money towards my real estate portfolio. Wondering if there is away for me to get the cash is the short term without loosing half to the taxes.

Justin Windham · Answer

@Mitchell Flaherty

A Self-directed IRA or Solo 401k is likely the best option to avoid taxes and penalties while maximizing your investment options. They are popular here because they allow for investment into real estate and other alternative assets instead of being restricted to stocks.

Jared Klock · Answer

You could form a C Corp and use your 401k to fund working capital for your business.  It is called a 401K ROBS program.  No penalty or tax on the monies.

Rebecca Parker · Answer

As others have suggested, a Self-Directed IRA would enable you to use the funds for real estate investing without having to take the funds out as distributions at this time. Rolling over from a previous 401(k) to an IRA is fairly simple to do and the custodian you choose to go with can help with that process/instructions, too. Not all custodians are created equal, though! There are some that will also provide education so that you feel confident using the SDIRA you now have. I currently use my Roth IRA for secured loans, and I've got some resources, if you'd like to connect!

Jaron Walling · Answer

@Mitchell Flaherty That's great. In your situation you have a few options including converting an existing IRA into a self-directed IRA, or SDIRA. It allows you to invest in a huge variety of things including property, land, commercial stuff, etc. Doing this comes with pros and cons. Be cautious because you can only pay back $6K per year based on current laws. This type of funding can jeopardize future compound growth in a retirement fund.

You could tap an existing 401(k). You’ll pay interest on the loan, typically the prime rate plus points. This has cons too because if you leave the employer you'll owe the entire balance.

This is an amazing article I found that discusses in detail what you could do. Maybe it gives you some smart ideas. Just be cautious at this time because we could be in for a rollercoaster ride with real estate prices.

https://www.investopedia.com/a...

What to do with my pension.

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