Cashing out a Roth 401k

[Dawn Anastasi]

I have been told all my life in saving into my 401k that you need to save the maximum that you can. So for many, many years I have been saving the absolute maximum allowed by the government every year into the company sponsored Roth 401k with the employer matches.

All that money just sitting there; I feel as though I could do a lot more with it in real estate. Especially when I see myself losing $15k in one year. But taking any out, that would be going against everything I've been preached to over many years, so that's why I hesitate.

Anyone else feel that way? It's like after the zombie apocalypse, feeling bad for taking stuff from a grocery store without paying for it.

If you've been in that situation, what have you done?

[Jeremy Vohwinkle]

As a Chartered Retirement Planning Counselor, I have to caution against taking the money out early. Even with a Roth 401k, there are some penalties for early distributions. On top of that, if you are still an active employee with the company that offers the 401k, you may not even be able to withdraw the money and have to rely on just taking a loan from it.

That being said, I always tell people it's all about diversification. A 401k, Roth 401k, or IRAs, are just one aspect wealth building. You never want to put all of your eggs in one basket, but if you are investing in real estate as well as tucking money away in a tax-advantaged retirement account, you're simply diversifying, not only in the investments, but with the tax strategy as well. We have no idea what the future holds, so having money invested in various ways will allow you to structure your withdrawals later in life to make the most of it.

If you are unhappy with your Roth 401k performance, change it. It's been the best bull market in decades in recent years, so if you lost money recently, you may need to adjust your holdings. You have a decent amount of control and can park the money in steady income-producing investments, the stock market, or any combination that your plan allows. So I'd look at how your 401k can compliment your total investment portfolio, including real estate, and structure your investments so that it makes sense for your end game scenario. It shouldn't just be seen as a single account/investment and then ditch it without first examining how it plays into your total financial picture. Maybe the answer is to reduce how much you put into the 401k and direct more of it toward real estate, but until you sit down and look at the numbers you'll never know.