Pull funds out of 401A and Take tax hit now ?

Question

Got a recommendation ( not from a fiduciary) to take money out of 401 A now ( I’m retired) and invest in R.E. SFH’s. Claim is taxes are only going to go up….better off paying the taxes now and having full control of your money.

Or, is it better to move the funds to a solo 401k - which still has restrictions, limits you to non-recourse loans, yet holds off the taxes?

Or, go the HML route and then cash out refi and leave the 401 alone ?

not employed so debt to income could be an issue getting conventional financing.

Ray Kellogg · Answer

@Justin Windham - thanks for the input. No self-employment at this time and no plans in the future either, other than investing in real estate. Still feel uncomfortable leaving $$$ in a 401A.

@Basit Siddiqi - thanks for your response as well. I feel that pulling the funds out and purchasing SFH's will provide, Appreciation, Depreciation, Cash flow and tax deductions. What I lose is taxes on the funds to Uncle Sam. And with the inflation that we are looking at this year and next, moving funds into a hard asset now seems imperative.

thanks again

Ray

Basit Siddiqi · Answer

@Ray KelloggI 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 purchase2) 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!

Justin Windham · Answer

@Ray Kellogg

Most tax advisors would likely recommend continuing to defer the taxes in a retirement account rather than take the hit on taxes and potentially penalties all at once. A Solo 401k is a great option if you are eligible. If you have self-employment activity, you can continue to grow the retirement funds by investing them into real estate and other alternative assets. What the Solo 401k would not accomplish, is creating income for you now. If you have non-retirement assets to invest, those funds can create income for you personally. Many of our most successful clients invest both inside and outside of retirement accounts to get both of these benefits. If that is something that you can take advantage of, that would likely be ideal. That said, you will probably receive some responses recommending that you do distribute your assets, take the hit, and invest into real estate personally. While this might work out for you, I would consider it the more extreme and risky approach.

Pull funds out of 401A and Take tax hit now ?

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