Using retirement funds

[Costel A.]

I have a 403(k) retirement plan with Fidelity. I talked to them today about using some of my retirement money to start investing in real estate. They said that I need to transfer this money to an IRA then I'll have more freedom, I can withdraw the money and it's up to me if I want to put the money back later or not. For this I am going to be penalized (10%) and I also have to pay taxes on the withdrawn amount. I knew this would happen if I just wanted to take some money out before being 60, but since I am using the money for investing I was hoping that I am not going to pay any taxes or to be penalized since I am just switching from stock and bonds to RE. Maybe they didn't pay attention when I said I want to invest this money not to buy a nice car.

Any thoughts about this? 

[Brian Eastman]

@Costel A.

As usual, the advice provided by a Wall Street firm is missing the point.  They only know one think, which is how to sell stocks.

An IRA can be configured to invest in a broad array of assets not sold on Wall St, including real estate, private lending contracts, precious metals, stock of privately held firms, etc. You just need to work with an institution that is setup for this type of record keeping.

You can establish one of several different self-directed plan formats depending on your situation and goals. There are IRA accounts held institutionally by self-directed custodians (generally trust companies). In this case, the institution does all the transacting on behalf of the plan at your instruction, and charges for those processing services. There are also plans under the umbrella of such an IRA that provide you with checkbook control, such as the IRA LLC. This allows you to control the funds, sign contracts and administer your IRA's investments without 3rd party delays and fees. A Solo 401k is a similar program, but designed for folks who qualify by being both self-employed and having no full time employees.

Do some reading here on BP and then reach out to some of the professionals you will find here to learn more.  There are a lot of variables and identifying the right format for your situation is easiest when speaking with an expert.

The bottom line is that the money stays in a tax-sheltered retirement plan format, but can be diversified into assets such as real estate.