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Seeking Advice on Using Retirement Funds for Real Estate Investment
I'm considering cashing out my 401(k) and IRA funds to invest in more real estate and would appreciate any advice or insights on whether this idea is viable.
Current Financial Situation:
- Significant savings in 401(k) and IRA accounts.
- Additional funds in a taxable brokerage account.
- Age: 40, with a relatively high effective tax rate.
- Limited emergency fund.
Existing Duplex:
- Mortgage with a 75% LTV ratio and a high interest rate.
- Modest annual cash flow.
Withdrawal Scenarios:
- Scenario 1: Withdraw everything today at age 40, resulting in a 35% loss to penalties and taxes.
- Scenario 2: Withdraw at age 60 with growth scenarios ranging from 1.3x to 2.3x the initial balance.
Proposed Real Estate Investment:
- Purchase two additional duplexes with a 75% LTV and 6.635% interest rate on a 30-year term.
- Projected outcomes include appreciation, cash flow growth, loan amortization, and tax benefits.
Comparison of Real Estate vs. Retirement Accounts:
- Conservative estimates suggest real estate investment could more than double the value compared to leaving funds in retirement accounts.
- Best-case scenario projects nearly three times the value through appreciation, rental income, mortgage paydown, and tax benefits.
Conclusion: Investing retirement funds in real estate offers significant potential for financial growth and diversification. Despite risks, the projected returns surpass those of traditional retirement accounts.
Seeking Advice: I would like your advice on whether using my retirement funds for real estate investment is a good idea, considering the potential risks, returns, tax implications, and any alternative strategies.
Thank you for your help!