401k liquidation considerations

[Carter J.]

Hi all :) I'm considering liquidating my 401k to buy rental properties. I currently have 4 and they're cash flowing quite well.

I've been reviewing a few discussions here on BP that discuss the benefits and disadvantages of withdrawing money from a 401k, using self-directed 401ks, matching/not matching employer 401k contributions, and a whole bunch of other options. All sides appear to have great points.

The thing that is nagging me while I'm reading them all is this: 401ks/Roth IRAs/whatever fancy retirement savings plan all force you to retire at a particular age: 59.5, and if I understand the implication here: you can't use any of the money until you're that old. Yes, you can use it to reinvest it into whatever retirement plan you have, but the moment you take any of that money out to go buy dinner, you get penalized. If I understand correctly, you can't actually do anything with it to improve your life before the age of 59.5.

Maybe it's just me, but I'd rather retire way before that. I love my job, but I love my family more. I'd rather spend time with them than work. Let's say I get my rentals cash flowing to an amount that pays my living expenses plus whatever extra I would want for luxuries/vacations/whatever. Simply put, let's say I get all the cash flow I need to live a comfortable life (and cover rising health costs/cost of living increases/whatever). Assume it's just raining money from all the rentals.

If I'm able to do that by 40 or 50, why would I bother contributing anything to a retirement account that I have to wait to utilize? It's great that name-your-favorite-retirement-approach can save you all this money with tax advantages, but I genuinely don't see the benefit if I have to wait to use money I won't need. If I have what I need/want way before 59.5, then all the tax savings in the world don't appear to actually provide anything of value to me.

Is there something I'm missing?

[Bryan Devitt]

Pulling money early might be the worst and most financially stupid moves you can make in your life. If you're lucky (depending on your state taxes) you'll get 50% of the money in there and you hand over the other 50% to the government for absolutely zero reason. If you think you can magically double the money instantly and beat the compounding rate until you're 59.5, go for it. Otherwise if you like real estate as an investment move it to a self directed and find people you trust to use it in their deals. Then stop putting money into your 401k and other retirement accounts and do deals with that. Depending on how old you are even taking $100k out now to use the $50k you're allowed to keep when it's done and using it for real estate investing, you would have to be one of the best investors out there to beat what would happen in the long run if you left it to someone else. I also wouldn't have a penny in the stock market right now because that is another way you could lose 50% in the not so distant future but that is a different topic for a different time. I just don't want you to leave it in stocks, lose a ton and think it's our fault for telling you to leave it in a retirement account and you should have pulled it.