Max out a roth IRA vs Save more aggressively to start BRRRRing

Max out a roth IRA vs Save more aggressively to start BRRRRing

Member since 2019 · 4 posts · 2 votes

Looking for some opinions here, particularly from some FIRE people.

Background: I'm 23, a year out of college, earn ~60k in the military and carry almost no college debt. I've been maxing my roth IRA for the last three years. Been studying personal finance for the last year or so, and the idea of F.I. has caught my eye for the last few months. Just read David Greene's BRRRR book and in it, he suggests saving until you have the capability to purchase a distressed property without financing before you get started. In order to reach my savings goals more quickly, I've considered cutting back how much I contribute yearly to my roth IRA.

Question: Could saving more aggressively for real estate investment (in order to achieve financial independence more quickly) justify reducing retirement savings that will compound for nearly 40 years?

Pros:

  • If I were to achieve FI by, say, 40 the need for a large payout at 59.5 is lessened.
  • FI earlier in life due to quicker timeline. Maybe I'm drinking the FIRE coolaid a little too much, but if I can reach a stage in life with an ideal work-life balance earlier (particularly when family/kids are young) I should pursue that as aggressively as possible.

Cons:

  • I'm still working towards my first investment property. Reducing roth IRA investments (in mutual funds/lifecycle funds) is putting a lot of faith in just one investment type.
  • As young as I am, cutting retirement savings massively reduces available sum at 59.5. (e.g.: a one time $6000 investment at 7% annual return becomes just over $73,000 in 37 years)

(pardon the extra few bullets, I couldn't get rid of them for some reason)

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      Melbourne, FL · Member since 2015 · 99 posts · 42 votes
      7y

      @Anthony M Schlitt you can have your cake and eat it too :). I am also in the military. First off, you can borrow from your IRA to use as a down payment for a property. Second, you get VA loan funding of up to $417k with no down payment. You can use your VA funding loan to HOUSE HACK by purchasing Two - Four units multi family as long as you agree to live in you of the units. In addition, you can use 203k loan to purchase distress properties that you will live in and convert it to VA funding. I recommend you keep it simple, use your VA funding to purchase two-four unit multi-family close to the base your are at, rent to follow military members so they can pocket some of their BAH (everybody wins). You follow this and you should be able to live for free and pocket your BAH. All while continuing to max your IRA contributions.

      Go Blue!

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      • Alec FennerPro Member
        Rental Property Investor · Cincinnati, OH · Member since 2019 · 23 posts · 2 votes
        7y

        @Anthony M Schlitt

        I’m in a very similar situation as you, and I have not done the math but to me the idea of retire at a age I can enjoy my freedom at is worth the risk.

        And also I’ve only been working for 2 years now and if I wait for conventional retirement that means 45 more years of working and I can’t accept that

      • Knoxville, TN · Member since 2019 · 4 posts · 3 votes
        7y

        Just so you're aware, you can pull out all your contributions without penalties from a roth IRA. It's your money that you have already paid taxes on. Personally, I would keep maxing out the roth and if you find a deal, liquidate all your contributions while leaving your gains.

      • Melbourne, FL · Member since 2015 · 99 posts · 42 votes
        7y

        @Anthony M Schlitt you can have your cake and eat it too :). I am also in the military. First off, you can borrow from your IRA to use as a down payment for a property. Second, you get VA loan funding of up to $417k with no down payment. You can use your VA funding loan to HOUSE HACK by purchasing Two - Four units multi family as long as you agree to live in you of the units. In addition, you can use 203k loan to purchase distress properties that you will live in and convert it to VA funding. I recommend you keep it simple, use your VA funding to purchase two-four unit multi-family close to the base your are at, rent to follow military members so they can pocket some of their BAH (everybody wins). You follow this and you should be able to live for free and pocket your BAH. All while continuing to max your IRA contributions.

        Go Blue!

      • New York, NY · Member since 2019 · 10 posts · 12 votes
        7y

        100% max out the Roth IRA. After you have the Roth for five tax years (if you opened one in 2017, then 2019 would be your third year), then you have pull out all of your contributions, plus the first $10,000 in earnings, tax and penalty free for a down payment. Of course, if you go the VA loan route, this may change your thinking. The Roth is a great way to invest tax free and you can pull out your contributions at any time.

      • Investor · Longmont, CO · Member since 2016 · 185 posts · 156 votes
        7y

        @Anthony M Schlitt

        I would say make a decision dependent upon other factors like if you plan to put your 20 years in and get a pension from the military. The stock market may or may not continue to yield those returns. With REI if you are getting a 7% COC you're also capitalizing on debt pay-down, potential appreciation, and tax benefits.

        I'm in a similar position and have decided to double down on REI but also contribute something to my Roth. It is possible for you to make a reduced contribution and still save for your first property.

      • Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
        7y

        @Harrison Tull

        Even better, every 365 days you can pull out 100% of your Roth for a REI. You have something like 60 days to return it before getting hit with a penalty. I did it last year on a BRRRR and it worked out great. As soon as the refi was complete, I wired the funds back to my ROTH.

        Disclaimer, I'm not a CPA, I'm only sharing what I was advised to do last year.

      • Mark S.Pro Member
        Rental Property Investor · KY · Member since 2013 · 1k+ posts · 537 votes
        7y

        @Anthony M Schlitt, do both: max your Roth IRA AND save outside of that for REI. No offense, but if you can't do both, your savings rate isn't high enough and you need to evaluate your income vs expenses. Worst case scenario, contribute to your Roth IRA and leave it in cash for the time being until you have a better handle on when you'll need the funds. You can until tax deadline of any given year to make a PRIOR year contribution, so keep that in mind as well. Best of luck with your decision.

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