What to do with 401K money

Question

I’ve left an employer after 9 years and have $100,000+ in retirement sitting in a 401K. I’m undecided on what to do with it.

Move it to IRA.

Roll it over to new employer.

Cash it out, pay the penalty, and buy more real estate

We own 7 investment properties. I have a full time W-2 job.  My husband also has a W-2 job, but is about to leave it to work full time for our business of flipping/repairs/land clearing/construction.

Joe Hammel · Answer

@Veronica Thomas

I used the Covid situation to pull my 401k out penalty free to buy real estate.

Greatest thing I ever did. I’d pay the penalty and do it again if I had to.

Leave it in 401k and earn 8% for the next 30 years

or

invest in real estate and earn 12% CoC ROI plus tax benefits and in 30 years have a paid off asset worth $200k.  And then refinance, and leverage your money again.

It’s not 8% vs 12% it’s more like 8% vs 50% ROI

Real estate is slightly less passive than stock market.

M Trevor Bennett · Answer

With the current market I would roll it to a Self-Directed IRA ASAP as you are most likely losing 100s daily right now. I have multiple accounts with homes in IRAs but have found Equity Trust to be been a GREAT partner. I would be happy to send you Franks contact would will personally walk you though every step. Taking this route is 100% tax free if you just thought some minimal hoops. Let me know.

Andrew Hogan · Answer

Agree with Greg. I'd take that cash out, sell at least 5 of your investment properties, and diversify that across hundreds, if not thousands of multifamily doors as a passive investor. It will make for more time do do what you want, more depreciation losses and a better risk-adjusted return overall.All the best @Veronica Thomas!

Greg Scott · Answer

If your husband will soon qualify as a real estate professional, it's a no-brainer.  Take the money out.

As a real estate professional, any passive losses can offset your W2 active income which would include any withdrawals from your 401K.  You may still be responsible for the 10% penalty, but that is nothing compared to the benefits of getting your money out of Wall Street and into real estate.

Justin Windham · Answer

@Veronica Thomas

A Self-Directed IRA is one option to have more flexibility with your funds. For more control, and IRA LLC is a common choice. The third, and generally best option is a Solo 401k if you are eligible. All of these options will allow you to invest into alternative assets with your retirement money. There are Solo 401k and Self-Directed IRA providers who post regularly to these forums. I would recommend reaching out to some to get a better handle on your options.

Veronica Thomas · Answer

@M Trevor Bennett I’m definitely interested in finding out more.  I need to research more on how this works. Buying real estate through the IRA?

What to do with 401K money

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