All Forum Posts by: Evan Bonnell

I posted about this a while back and got some great feedback:

https://www.biggerpockets.com/forums/895/topics/825750-cashing-out-401k-due-to-covid-19-100-000-penalty-free?highlight_post=4858632&page=1#p4858632

Sounds like you want to take the $100k distribution and leave your career. If you qualify, you would avoid penalties, but have to pay taxes. If you can make enough in REI to justify the gains you'll lose by pulling $100k out of a tax advantaged account, it might be worth it.

Alternatively, you could take a $100k LOAN, pay it back in 3 years (with interest paid to yourself) and avoid taxes and penalties. You probably have to stay employed. All you would be out are potential gains the account would have made over 3 years.

Net worth:

$1M by 35

$2M by 40

$10M by 65

96% of the way to my first goal, might get there if the market recovers by birthday in August.

FIRE by age 40 with $10k net monthly income from RE so I can leave stressful corporate life, sell my alarm clock, spend more time with family and shop at Whole Foods without remorse.

@Jeffrey D. Logan wondering this myself...

If your stocks/bonds are in a 401k, you may or may not want to withdraw them before age 59.5, you would pay taxes and potentially penalties. Mine are, so I don't even count them in my FI number. 

In terms of RE, if you can live on 60k/year, get your net rental income to 60k/year. Include a healthy cash reserve (10% of total property value or more). Run numbers very conservatively with vacancy and maintenance higher than expected. 

After you achieve this, you're home free. The rest is scoreboard money.

@Ignacio Rosenberg

I'm in the same situation. Closing on a duplex now with $1550 gross rents. Market rent is at least $1800. Previous owner hadn't raised rents in 14 years. My PM said I could notify the tenant on month to month lease there will be a rent increase in 30 days. The tenant with a year lease, I'm bound to the terms for the duration of the lease. I think I'll just keep rents the same for 1-2 months then give notice of increase if/when the virus becomes less of an issue.

@Scotty Gifford appreciate the positive an optimistic view! I don't think the idea is crazy, but it sounds like I could optimize taxes and profit using some of the advice given on self-directed accounts.

@Dan Schwartz so much wonderful, dense information. It took me a while to unpack it all since I'm still new to these strategies. And I am one of those people who contributes only to Roth (except for employer matches).

HELOC seems like a good option for you. Might cost $1000 or more to setup depending on how much you want. Opening a line of credit now while it's possible would be better than waiting, we don't know if banks will start denying them.

I just used a HELOC for a 25% down payment on a duplex that I'm putting a 30 year fixed mortgage at 3% on. If a bank is quoting you 6.5% on a fixed mortgage it probably worth it to shop around.

@Jeshua Patrick Excellent food for thought. I’ll research self directed accounts, especially those with MySolo401k. You may have saved me tens of thousands. Thanks!

@Jason C. point taken!

In doing some math, now I'm leaning toward keeping the money in the 401k, and coming up with down payments for REI elsewhere (lines of credit, patiently waiting for cash flow to accumulate, profits from flips).

@Natalie Kolodij

Thanks!

@George Blower

Thanks for the feedback!

My employer allows withdrawals of $50,000 normally, $100,000 if affected by COVID, both penalty free.

Taking the distribution and paying taxes over 3 years is tempting. Not interested in the loan, too many rules and and I want less money in the market, more in REI.

The main obstacle is proving hardship as Natalie mentioned. We lost daycare and are alternating time off to watch the kids, so far we've only used paid time off. Maybe taking the normal $50,000 distribution would be a better option, no need to prove hardship.