RETIREMENT FUNDS FOR RE INVESTMENTS

[David Jayne]

I was listening to a recent podcast, and the guest indicated he would advise liquidating IRA/401(k) acounts, transferring to a solo 401(k) and then investing in discounted real estate notes. He also advocated not making additional contributions to company 401(k) plans, regardless of their matching policy.

I realize there are some pretty horrible IRA/401(k) plans out there, but I think that is dangerous advice. If you liquidate a 401(k) before age 59 1/2, you incur taxes plus a 10% penalty. Adding that one-two punch together can easily equate to a 40%-50% reduction in your retirement account. If you're young and you don't have much in the fund, maybe it's not a big deal. But...if you're 50+ and retiring in a decade or less, you would have to significantly outperform your current investments to make it worthwhile (roughly double the rate of return). Not impossible, but a little too risky for my blood.

Also, if your employer provides matching contributions, that's an automatic 100% return! Tough to beat a doubling of your investment overnight. Even if the available investments suck, you could at least contribute enough to get the match. You could always take your funds and make a run for the RE border when you leave the company.

Anyways, I guess my point is, you can't make just broad-brushed recommendations. The best answer is likely dependent on the individual's circumstances.