Should I cash out my Roth IRA? Teacher Retirement?

6 Replies

Hi Bigger Pockets! 

I have about $6k in a Roth IRA. I just looked at my quarterly statement and I made $43 this quarter..... can anyone shed some light on cashing out an IRA.

I also have about $20k in my teacher retirement account. I'm phasing out of teaching and have gone part time this year thanks to my real estate income. This cash out is a higher percentage, penalty, but I can ultimately get a higher return. 

Thoughts or insights? 

Thanks!

I would hesitate to cash out completely as the penalties are outrageous - look at what the replacement time would be on the penalties you'd pay - you're likely eliminating many years of potential growth. 

As that's not really a helpful answer, here's what I'd do:

  • A Roth IRA allows (check with your tax professional) you to take out all your contributions without penalty. Leave anything in there that counts as growth and you will likely still end up with a decent amount of money, and without paying a penalty.
  • Roll your teacher retirement account out of that vehicle into a low-cost index fund or ETF fund. There are plenty. I prefer Vanguard, but that's just my personal preference. 

If you want to use all the cash for investing, you might want to look into a self-directed IRA or a solo 401k. There are a few tools on here that can help explain those options to you (better than I could, anyway). They're more rule-heavy than we all might prefer, but at least you're not taking a ~35% haircut on your money. Good luck!

@Shawn Q. Thank you!! Thank is so helpful. I've been doing research on IRAs and I think you're right. Since my IRA is pretty young, I won't have much earnings (as is apparent by my sad quarter)

TRA is definitely a crazy penalty, but rolling it over is a great idea. 

Thanks so much!! 

Hey @Stephanie Douglass have you reviewed the plans investment options? I would imagine you have the ability to invest in low-cost index funds or ETF's within your original account. This could dramatically improve the returns in your account and also give you a nice cushion for retirement. Also, I would be careful when considering liquidating your account and "cashing out" because you may be subject to taxes on the gains as well as a 10% additional penalty. You can roll your Roth held with your employer over to another Roth are at a different custodian on the retail side. When you do that you will have the ability to choose your investments from the entire universe of investment products the custodian offers. One of the greatest benefits of the Roth IRA is that you pay the taxes up front so you dont have to pay them when you take a distribution during retirement. The idea is that you are in a lower tax bracket during your contribution years than you are when you begin to take distributions.

Hope that helps a little? 

@Stephanie Douglass

I agree with @Justin Yeager it does not sound like the type of account is the problem, rather the type of investments that your account is currently invested in. There is a huge range of traditional and non-traditional assets you can invest in. 

As you are here on bigger pockets, I believe its safe to assume you are interested in real estate investing? Did you know you can use retirement account to invest in real estate? They types of accounts are called self-directed IRA or 401(k). There are many posts on this topic on bigger pockets. If you are interested in more details, I would be very glad to answer any questions you have.

As a few others have mentioned, a Roth is a very powerful investmnet tool. You should speak with an accountant or finacial advisor to help guide you as this is an important decision. There are many benefits to having a roth account.

Here's my train of thought; You're going to have to pay taxes on the distribution regardless. To be smart, determine if the one-time 10% tax penalty is worth it. If you can get 20-30% COC return, repeatedly, it could be!

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