Should I cash out my IRA for my next REI?

Question

Should I say goodbye to my IRA?

Details: I'm currently 30 (no kids) and my wife and I plan on retiring with a decent "pension" at 42.  To maintain our standard of living and travel the world like we want, we will need to supplement our income however.  I've already started purchasing real estate, but I'm interested in purchasing my next buy and hold REI, and most of my cash is tied up in my IRA.  Since we will need extra cash flow when we are 42 and not 59.5, I'm considering cashing out my IRA.

Option 1: Cash it all out and use it all for REI paying taxes and penalties on any gains.

Option 2: Cash out only my contributions to avoid the taxes and fees.

Option 3: Leave it alone/do a self-directed IRA and find money for your goals elsewhere.

BP experts, please let me know your thoughts.

Daniel Chang · Answer

@Kyle Myers

Option 3.  Leave it alone, find money elsewhere.

If you say to me, I plan to retire at 42, but plan to die before 59, then I'd say, yes go ahead and cash out your IRA.  But I assume you don't plan to die at 59.  If you expect retirement at 42, you need to plan for your whole retirement, and not just the initial few years.  By cashing out your IRA and paying taxes/penalties, you just hurt your overall retirement while benefiting the initial years.

Rajeev Kotyan · Answer

@Kyle Myers: The question that you ask, while specific to your ROTH IRA, the answer is actually resident in the total financial plan and goals, not simply what you do with your ROTH IRA. I will highly recommend that you work with a knowledgeable and qualified financial planning professional who can help you analyze your thoughts into numbers and come up with options, based on realistic and pragmatic numbers. As all the respondents here have mentioned that there are caveats and concerns with the cashing out of ROTH IRA, but take a step back, spend some time with a financial planning (not asset management) professional who truly can show you all the options so you can make a truly education decision.

Account Closed · Answer

I was confronted with this delema a few years back - lots of ideas & opportunities, but no cash. I was very hesitant to touch my Roth, IRA or 401k, since I believe in diversification and I'll need those funds at 62...

I chose to use borrowed money and leave the Roth for absolute emergencies. I refinanced, took what I would out of my primary residence, and used a handful of 0% teaser rate credit cards. My model was buy a property, rehab, put tenants in place, cash-out refinance with the lease supporting income for DTI calculation, repeat.

Erin Featherstone · Answer

@Wells Lange What type of two projects did you invest in?

Erin Featherstone · Answer

Thanks

@Wells Lange

Thank you.  You are the first person that has given me this honest advice.  We are running numbers both ways, but the non-recourse loan is so restrictive we can only get maybe 1 condo with 40% down and high interest rate, but if we pull it out we can get 2-3 with conventional financing.  We have not made the decision for sure but we are running the numbers and it sure seems what you did makes more sense.

Kyle Myers · Answer

Thanks, everyone. @Erin Featherstone I think for now I'm going to leave it alone and start becoming creative. Even though I plan on "retiring" at 42,  @Daniel Chang got me thinking about what will most likely happen.  I will probably find something I enjoy doing part time in my 40s-50s to supplement my income, but at 60-on I most likely won't have any additional income.  The IRA will be a good way to make that gap up.

Erin Featherstone · Answer

@Kyle Myers

I am new to the forum but my husband and I are asking ourselves the exact same question.  We both have old 401ks from previous employers.  They total $140k.  They are getting less than 2% return in the stock market and it is driving us crazy.

Now we are looking at:  Cash out? Invest in self-directed?

What did you and your wife end up doing?  I'd love to learn

Dmitriy Fomichenko · Answer

@Daniel Chang very good explanation!

I have this question come up every once in a while when people say I don't want to wait to retire at 60, I want to retire sooner. That's a great plan, just you need to use other means to support your retirement life style before 60. Retirement plans are designed to support you during retirement after that.

Kyle Myers · Answer

@Dmitriy Fomichenko It is a Roth sorry.  I know all the rules, looking for what to do in this particular situation.

@Mark Nolan I completely understand your point, but we are looking for our "cash cow" when we are 42 (17 years too early for the IRA) and to get the ball rolling early I'd like to use the cash in my IRA. Does that change your view on things, or is the a never ever thing for you"

Should I cash out my IRA for my next REI?

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