Pull funds, Roll-over to self-directed, or keep in 401k

[Brady Hoffpauir]

Question from an investor:  They would like to use their retirement account to invest in RE.   From a long term investment perspective (10-20 yrs), has anyone evaluated the financial comparison of the following: 

1. 1) Keep money in their current employer 401k (5-8% average annual return over long term)
2. 2) Roll over ~100k to a self-directed account and invest in a syndication as a passive investor
3. 3) Early withdraw ~100k from their employer 401k, pay the 10% penalty + taxes, and invest in a syndication as a passive investor.  

Of course the intent would be to continue the re-investment of the funds in RE from that point forward.  

Curious if anyone has done the math to show how the long term financial comparison plays out, considering taxes, fees, how the tax benefits (depreciation) of real property outside of a retirement account offsets the penalties of withdrawing money early, etc.  

Would love to get the BiggerPockets community's feedback - especially if you have a case study or example.

Disclaimer to those following along... Always talk with your CPA before taking action on advice from the posts below.

[Carl Fischer]

Great questions to ask, @Brady Hoffpauir. I invest in real estate outside of my IRA. I invest in real estate in my 401(k). I invest in real estate in my Roth IRA. They all have advantages. My favorite is the Roth IRA or 401(k) for real estate investing. Tax-free income and growth is better than the tax-advantages of real estate outside of the IRA. For example, I pay no capital gains tax, whether in a syndication or not, in my Roth accounts. I don't get the depreciation in the Roth or Traditional accounts, but I don't pay any taxes, so I don't need the depreciation. With my real estate outside of the IRA, I do get the tax advantages, but I also have to pay capital gains and depreciation recapture taxes when I sell the property, or do a 1031 exchange. But overall, Roth accounts are the easiest and the most advantageous to building wealth in my opinion and experience.

As @Eric Johnson said, "it depends" is the answer for most of this, but you have to look at your goals and the best steps to get you there. Nobody that I am aware of is upset with having a Roth IRA, and a lot of people wish they had gotten into them sooner. With 40 years of real estate investing and real estate related investments such as notes, mortgages, and tax liens, I believe that the Roth is the best tool available. The tracking and administration seems to be easier in the tax-advantaged accounts with yearly returns and record-keeping. Also, in reference to the UDFI with a Roth IRA, that can be eliminated by paying off the loan a year before it is sold. If you do have UDFI tax, it is generally very low because you are able to use depreciation and other write-offs to lower that tax. I hope this helps. If you have any other questions, feel free to connect with me.