55 and starting over due to layoff - But significant money in IRA

[Victor Hoffman]

I've always been interested in real estate. But, found myself in a sales career that I was pretty good at and did alright. At 55 Years old I have a seven figure IRA. However, I ended up being laid off as part of a buyout and consolidation process....I worked for the acquired company in an industry that's on a down trend.

I'm looking at this as an opportunity to start over and be my own boss.  I have no interest in trying to learn a new corporate culture in a W-2 job if possible.  I took a little time off and enjoyed my severance package and got my Real Estate License...well passed my pre-licensing.  California is a bit behind so application is being processed and I hope to be able to schedule my test soon.  I intend to get my MLO as well.

I fully understand that "jumping into" real estate sales will be a process. However, since I don't have direct access to my IRA yet...is there a way that I can leverage that money to get into real estate investing? I've heard some talk about self-directed IRAs and buying investment properties. However, it seems like this might eliminate some tax benefits to real estate...though I suppose the IRA would offer some tax benefits.

Finally, I do need some sort of income now. So, I may have to tap into my IRA some to keep the bills paid as I start my real estate sales career...hopefully the tax write offs help offset the 10% penalty.

I'm new to Bigger Pockets...but have been listening and am inspired daily.  But, some brainstorming on how to leverage money that incurs a 10% penalty if I access it now would be helpful.

Thoughts?

[Brian Eastman]

@Victor Hoffman

A self-directed IRA would be a means to diversify some of your retirement savings into real estate. If you feel you can better secure and grow some of that money in real estate rentals, private lending, etc. you could consider such a plan. You would not have access to the money personally.

Since you will be self-employed as a realtor, you could look at a Solo 401(k). This is an owner-only version of a 401(K) plan with high contribution limits and the same capacity as a self-directed IRA to invest in non-traded assets like real estate. One nice thing about the Solo 401(k) is that you can borrow up to $50K from the plan and pay that back over 5 years. If that will bridge your transition period, it might eliminate needing to take a taxable distribution from the current IRA.

Another option is a Rollover as Business Startup.  I'm not sure it fits your needs, but that is a program that allows you to invest your retirement savings into your own active business.  I don't think it makes sense for being a realtor as the cost of startup is so low.  We don't usually recommend the ROBS plan for less than $100K of business capitalization.  It would perhaps make sense if you wanted to become a real estate developer and build or flip houses.  This plan must be linked to an active business, so is not a means to acquire passive rentals.

Lastly, you may be able to take a distribution from an IRA and avoid the 10% penalty if you qualify for a hardship distribution. Check with your CPA. Being laid off probably qualifies depending on other aspects of your personal/family income situation.