All Forum Posts by: Daniel Murphy

First, I would look at your most recent tax return to see if you itemized, or used the standard deduction.   If you used the standard deduction, you are not getting a tax benefit from your mortgage.  So it could make sense to pay off your mortgage.  

More importantly though, before you do this I would think long & hard about what you actually want to do long term. Do you want to be a RE investor? Do you want to be financially independent? Do you want less stress? Do you want to weather a recession easier?  Determining your why is the most important decision in this. 

Like many others have said, you'd probably do much better in the long run if you used that money to buy real estate or invest in the stock market than if you paid your mortgage off.  I see a lot of "Should I pay off my mortgage" questions on this forum which I think is kind of funny as this is a forum for real estate investors. Real estate investors LOVE mortgages & love keeping cash available for the next deal. 

If you're 23 & in a position to pay off your mortgage, you have an incredible opportunity to catapult your financial freedom forward.  I would think long &  hard about this decision.  I would have conversations with multiple people (as opposed to forum posts) to talk through the nuances of all options.  I'm happy to talk you through this further if you'd like.  

@James Hamling & @Zak Carchedi, I more or less just wanted to know what the market is like.  The Twin Cities are not a high tourism or travel area. When I look at Airbnb there don't really seem to be many "dedicated Short Term Rentals", it moreso seems like homes that people just have up for rent occasionally. 

Are there areas or properties with more demand & regular demand?  What type & how booked are they? 

@Mark Sacandy, Thanks for sharing the deeper story of why you want to retire. I would want to retire asap also if I had your work situation.  I think it's great to get answers to these questions you're asking. I see them all as data points. When entering retirement, it's important to have enough data points to make an educated decision. 

For what it's worth, I'm happy to do a quick call, enter some of your info into some financial planning software (you would retain access) and talk you through your questions as a whole.  Your 401k advisor most likely will have a limited amount of time to talk to you and 2) plan advisors tend to be focused on the company retirement plan and may not have the deepest understanding of actual retirement processes.  Think of it as a single family home investor vs. a commercial investor. They are both knowledgable in real estate, but with different expertise.  

The reality is that by the time you retire, you will likely have a handful of different investments.  This is good. Everyone inherently knows that diversification is good, but people don't often think of "product" or "tax" diversification.  

You can look at a handful of options that are available with your 401k. Withdraw to buy RE, take a loan to buy RE, move to a self direct IRA to buy RE. You'll find that many of these options are not the most advantageous.

Your 401k was set up with IRS incentives to do what it's doing, sitting there growing until you're older. My best suggestion would be to find ways to continue to build up assets outside of your IRA to invest in RE, then just let your 401k sit. At most, I would consider taking a small loan from your 401k for a down payment, but even that makes the numbers hard to work.

Fast forward 10-20 years & hopefully you'll have a bunch of RE investments which can have a big impact on your taxes. This is when it could make more sense to start withdrawing from the IRA/401k, when your taxes are lower & more controlled.

I'm staring at a tax return from a RE investor who has ~$150k in taxable income for being a realtor. Plus income from 12 rental properties.  Add everything up, and his taxable income is $633.  

He has a total income of over $200k & his taxable income is only $633. Next to nothing! This is the true power of real estate investments. When you get to this point, you can withdraw from your IRA/401k virtually tax free. Patience is key...

Sorry to hear about your loss... 

Paying off your house will have no tax consequence, other than the loss of the interest deduction. Which, you'd want to look at your 2022 taxes to see if you itemized, or claimed the standard deduction. If you claimed the standard deduction, there would be no tax consequence whatsoever. 

The 401k loan is a bit more open-ended & complicated.  Depending on the interest rate of your loan, I generally lean away from paying off your mortgage as the potential return you could see in another investment would likely be greater than the rate of paying your mortgage off.  However, mortgages are one of the financial topics that illicit more emotional responses than nearly any other. 

The fact that you're looking to pay off your home and potentially retire shows me, this is emotionally important to you.  If that's the case, go ahead... Give yourself the "win", especially when it comes from a personal loss.  This can make paying off your mortgage feel so much better... 

We've had a 3/2 with a pool in CC for a little over a year now.  The area is definitely struggling since Ian.  Last year, every day in Feb, March & April was booked.  

This year we had 5 open nights in March & we had to discount a few because they were open so last minute.  We know a bunch of others with properties in the area & they are all in the same boat.  Much slower than last year.  

@Kalyan Kumar

As many have said, you would typically roll it into your own IRA. The pre-tax portion would go into a traditional IRA, and the Roth portion would go into a Roth IRA. Call the 800 number on your statement & ask them what their rollover process is. It will typically either be 1) they will accept your verbal instructions or 2), they will require paperwork.

You can then open an IRA & Roth at Fidelity, Vanguard, or wherever you choose & roll the accounts into it.

But... you want to first decide what you actually want to do with the money.  You're invested in VTIVX which carries a 0.08% investment fee. This is very low. Chances are, your 401k is not charging you any other (or many other) fees. This investment is low-cost and very well-diversified.  

If you are inclined to do something different, if you feel comfortable making hands-on investment decisions, then by all means, roll the 401k out into an IRA.

But, if you want to be passive & focus on other things you'd be perfectly fine to just leave it in the current 401k.  

Feel free to reach out if you have any questions or if this wasn't clear enough... 

While I have never read the IRS info regarding age, I've always been under the assumption that if you document properly, you can pay your kids.  Modeling etc. could qualify, I would just make sure to document everything to protect yourself. 

As far as how to save / invest.  I have 4 kids.  5, 15, 17 & 19.  I decided on a UGMA (uniform gifts to minors) account.  I decided on this because it's flexible.  We save in their account and have control over it.  Until they become the age of majority which you can typically elect to be either 18 or 21.  A key thing to understand is, at the age of majority you can no longer make any changes to the account. Only your child can.  

Also, at the age of majority the accounts becomes property of the child, so they could go blow it all on a car or something stupid.  The real key is... 

The child needs to know where the money is, and sign paperwork to change ownership.  So in my case, I have the accounts invested very aggressive while the kids are young.  As they get closer to the age of majority, I'll move it more diversified & conservative.  If it sits invested for a few years because my kids don't now where the money is held, it can stay invested as is for as long as you want. 

I hope that makes sense... Message me if you have any further questions. 

Does anyone have properties in the Twin Cities of MN? I'd love to connect & ask some questions about your properties...