Taking out money from IRA

[Doug Underwood]

Does it ever make sense to withdraw your money from an IRA before retirement to invest it in real estate? I know there is a 10% penalty plus it is taxed as income, however I would be able to invest the money in multi-family now and receive the income now rather than wait until retirement which is not for another 25 years. Right now I am torn on whether I should take the penalty to buy multi-family (8-10 units) or go the self directed IRA route buying rentals and not see any of that income for years. One reason I have been even considering this is a friend who did this and purchased many rentals that are now worth significantly more and he gets rental income. Also this is not the only retirement account, my wife and I have a profit sharing plan through my business that we regularly contribute to and would not touch. Any advice would be appreciated.

[Dave Holland]

@Doug Underwood

Everyone's preferences are different so it might just be whatever level of risk you are comfortable with and what sort of investing you do. 

Just think that if you are in say a 35% tax bracket then you'll essentially be taxed 45% on the money you take out. So $100k out of you IRA nets you $55k.

For me, I do buy and hold investing so I'd rather just save up for a down payment and not mess around with the IRA withdrawal. It would take too long to recoup that tax and penalty.

Others might believe they can flip a house and replace their lost IRA funds in a deal or two.