Taking Out My Roth IRA Contributions for Real Estate

General Real Estate Investing
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Taking Out My Roth IRA Contributions for Real Estate

Steven MayBusiness Member
Real Estate Agent · Kansas City, MO · Member since 2018 · 262 posts · 250 votes

Lately, I've been thinking a lot about lifestyle choices and my future as a entrepreneur or investor. I have heard it referred to as "Entrepreneur Bipolarism" -- where the mind is constantly battling itself on what is the best next step to advance one's portfolio. So, what other place then to ask the common people of BP forums. 

For a quick background -- I am a 24 year old registered nurse who and am taking my realtor exam next month for the state of Missouri. I currently own 2 properties in KC, MO. One is a rental that brings in about 200$/mo cash flow. The other is my personal residence that I have about 25-30% equity in and am thinking about taking a small HELOC against.

The stock market has been on quite a volatile ride lately and my portfolio has done well since I grabbed some more ETFs at the bottom a few months ago. Yet, I wonder -- do I want to wait until I'm 60 years old to enjoy those gains. 

My interest in real estate investing comes from the ability to create a financially free lifestyle. Rather than compounding effect of a Roth IRA and waiting to enjoy the funds later in retirement. So I have been contemplating the process of pulling just my contributions from 2019 and 2018 out to go and buy another property along with the capital I have in my checking account already along with a possible HELOC against my personal. (Pulling out just contributions to avoid major penalties) I would also lower my monthly contributions quite a bit in my Roth going forward as well.

Goals of mine are NOT to have 100 units but rather to obtain roughly 6-7 units that I can then begin to pay down aggressively to own free and clear one day. I also strive to be financially free by 35. The fear comes that I could find myself in a few years with a very small "traditional" retirement fund such as a Roth IRA or 401k.

As a 24 year old looking forward, who out there has had success in strictly investing in real estate and how comfortable are you in being "asset rich and cash poor"? 

Thanks for reading and look forward to the feedback.  

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Jaysen Medhurst
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
6y

I think the first step, @Steven May, is to get clear on what "financially free" actually looks like. How much income would that require each month? Is that a number for a single 24-year old? What will that number be when you're 45 and have 2 kids?

Now work backwards. How many units is that?

Why the focus on "paid-off" properties? This may feel "safe," but is often not the best use of your capital. There is a lot of power in responsible leverage.

Lastly, if you're making enough rental income to sustain a comfortable lifestyle, why would that be considered "cash poor?"

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    I think the first step, @Steven May, is to get clear on what "financially free" actually looks like. How much income would that require each month? Is that a number for a single 24-year old? What will that number be when you're 45 and have 2 kids?

    Now work backwards. How many units is that?

    Why the focus on "paid-off" properties? This may feel "safe," but is often not the best use of your capital. There is a lot of power in responsible leverage.

    Lastly, if you're making enough rental income to sustain a comfortable lifestyle, why would that be considered "cash poor?"

    1Reply
  • David He
    New to Real Estate · Bay Area, CA · Member since 2018 · 3 posts · 1 vote
    6y

    @Steven May I'm also considering pulling out Roth contributions to use for real estate for the same reasons you mentioned. This comes with some risk in that you are in essence timing the market when you pull your contributions out and once you've pulled the contributions out, you can't put them back should you not use it (or any that's left).

    Given that your goal is to be financially free by 35, you'll have lots of time before you'll be able to tap into any retirement accounts so you'll need to take that into consideration. Assuming you're not doing this full time and will continue working as a RN, you could still presumably contribute to these retirement accounts along the way, ideally resulting in a good balance of investments in real estate and investments in retirement funds at your later stage in life.

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  • Steven MayBusiness Member
    OP
    Real Estate Agent · Kansas City, MO · Member since 2018 · 262 posts · 250 votes
    6y
    Originally posted by @David He:

    @Steven May I'm also considering pulling out Roth contributions to use for real estate for the same reasons you mentioned. This comes with some risk in that you are in essence timing the market when you pull your contributions out and once you've pulled the contributions out, you can't put them back should you not use it (or any that's left).

    Given that your goal is to be financially free by 35, you'll have lots of time before you'll be able to tap into any retirement accounts so you'll need to take that into consideration. Assuming you're not doing this full time and will continue working as a RN, you could still presumably contribute to these retirement accounts along the way, ideally resulting in a good balance of investments in real estate and investments in retirement funds at your later stage in life.

     In regards to timing the market, seems like a good time..economy doesn’t match stock market soaring. 

    I still consider this daily. As I could have the monthly cash flow instead of checking in on my Roth every week just to wait 30 years to touch that money. 

    I have recently quit contributing to my Roth, just letting the Amount in there compound while I build my checking account to put into another deal. 

    1Reply
  • Carl FischerPro Member
    Rental Property Investor · Ambler, PA · Member since 2015 · 2k+ posts · 1k+ votes
    6y

    First, congratulations @Steven May for looking at this at such a young age. You're way ahead of the curve. However, you can have your Roth IRA and invest in real estate at the same time. You can have real estate invested in a Roth IRA and have tax-free income for life. A little known fact is that you can also take that money out early for many reasons, tax-free and penalty-free. So, I wouldn't give up on my Roth. You've chosen a noble profession in nursing, so I'm not sure if you want to start a business while pursuing nursing -- that is a personal preference. You can do real estate outside of your IRA as well, but my philosophy has to be minimize the income that I am not using because I'll pay higher taxes in a higher tax bracket, and I don't believe in investing in real estate to lose money and have tax write offs.

    "Asset rich and cash poor" is the way of real estate investors, and I feel it's hard for a real estate investor to let money sit in a bank or a CD at a tenth of a percent or no interest when it can be invested in real estate and be making 10-15%. There's lazy money and there's hard-working money, and if I ever need the cash, I have an equity line tied to most of the real estate properties. So in summary, I would keep the Roth IRA, I would use it to invest in real estate, and I would consider investing in real estate outside of my IRA to replace my nursing income to obtain financial freedom, but I will get there a lot faster with tax-free income than with taxable income. I hope this helps. For any additional questions, feel free to connect.

    [email protected]215-283-2868
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  • Matt StemenPro Member
    Member since 2019 · 7 posts · 4 votes
    4y

    @Steven May I’ve had the same thoughts myself and have wrestled through this. I’m curious if anyones thoughts have changed based on our current market being down compared to where it was a couple years ago. I’m considering taking out my Roth contributions to put into a deal before interest rates get even higher

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