Cash out 401(k) for real estate investment?

[Abby Robinson]

Hello fellow BP members! I have a 401(k) that has been sitting for the last 3 years that I haven’t been able to contribute to because it is set up through a previous employer. I’m considering cashing it out in order to add to a down payment we’re saving for this year for our first real estate investment purchase next year. I have about $7,000 in my 401(k). Because I’m in my thirties, I know I’ll pay a 10% tax for early withdrawal, but I’m wondering if it’s worth it since I’m adding the money to the rest of our savings in a high-yield savings account. Open to suggestions and criticisms. Thank you, BP Family!

[Mitch Messer]

Hi @Abby Robinson and welcome to BiggerPockets!

Rather than cashing in the 401(k) and taking a huge hit (early withdrawal penalty plus income taxes), I would instead roll it into a self-directed IRA (SDIRA) and play the long game.

Used wisely, an SDIRA offers most folks the greatest shot at serious wealth creation -- even more than their active investment activities -- because it eliminates the friction of taxes.

You appear to be in Georgia. If so, there's some terrific SDIRA training coming to Atlanta at the end of March. I'll DM you the details.

For the record, this training is not mine and I earn ZERO fees by making the referral. I've just been before and found it outstanding!