All Forum Posts by: James Somers

Many good points from all parties. One thing to consider is your age, what your total amount of 401k value is, how much your employer matches and what the vesting period is. Then you need to run the numbers. For example, my employer matches my contribution up to 5% of my salary dollar for dollar, and it vests immediately. So then I get a 100% percent gain on my money. I'm also 59 1/2 plus so I can contribute up to 5% of my salary, get a 100% gain and then withdraw the money at my income tax rate whenever I want. I doubt that anyone can match 100% percent gain in REI considering in my case that is an instant gain, I don't have to leave it sit. Moral of the story; everyones situation is different and I would calculate all the veriables. As it is I don't put more money into my 401k than my employer matches as I'd rather get the REI cash flow that beats 401k fund gains all day long.

If you haven't read Brandon's book the Multifamily Millionaire Vol 1 then I recommend you read it. When I read the chapter on Cap Rate x NOI equals the property value (commercial only so 5+ units) and the scenrios he presented my head almost exploded and I really wished I had started REI years ago, now I'm playing catchup... Best of luck!

@James Somers stack up the money in both vehicles. We invest fully in 401K and SEP IRA along with buying investments. You can shelter up to $58,000 for one person by 401K, SEP, Self-direct IRA, Roth, etc. in one year. After all that if you want to put into you can throw money into real estate, or you can throw $58,000 into real estate (for example) and then some money in your 401K.

Hey James,

Even though I love rentals, I'm going against the posts above - keep your 401k. 

While I was working my W2, I borrowed against my 401k many times for rehabs or down payments while I was building my rental portfolio, but never made a withdrawal. 

The balance between active investments like real estate and passive investments like index funds is ideal. 

Rental property cash flow is inconsistent due to lease fees, repairs and turnovers. Rentals are leverageable (which creates those juicy double digit returns) but they are also illiquid. 

Index funds are the opposite, they are fairly consistently going to return 8-10% a year, require no time involved and can be sold on a per share basis (at a transparent price) Monday through Friday. 

I contributed up to our company match, then invested any excess funds in real estate. This combination, I believe, is ideal for becoming financially independent. 

Best of luck!

I pulled my retirement funds a while ago. My augment is that you are going to have to pay taxes on your Qualified Retirement Money anyway so you might as well pay now while taxes are lower and not wait decades to finally get access to it. The 10% early withdrawal penalty is nothing, if you are investing in better assets that yield more. In most cases, I see you recoup that 10% in 1-2 years and they rest is all gravy after that.

More details below:

The biggest issue with regular 401k is the crappy options that have heavy fees.

I don't really like Self Directed Roths or any tax sheltered retirement accounts either because you are subject to UDFI (more details below) and cannot leverage your investment which is a pillar in real estate investing. If you want to do one here is a big list of them. Knock yourself out but I cashed out mine a while ago because I plan to live off my cashflow and retire well before the Government allows you to tap into your retirement account.

If you have distrust on where this country is going you need to expect that taxes will go up in the future. How else will we pay out for all these bank bailouts and quantitative easing.

What is the largest source of Revenue for the US IRS?

401K, SDIRA, IRAs, even Roth’s when not if they can change the tax laws. Basically qualified retirement money. People are not spending it and you can bet the IRS is going to get it.


You will pay taxes now or later and you will likely to pay more taxes in the future because you will make more money... so pay it now. Most people think they will be in a lower tax bracket in the future because they plan to downgrade their lifestyle... this is again incorrect money myths that are so prevalent.

By taking you money out early you will incur a 10% penalty but if you understand how you can easily get 20-30%+ returns in real estate a year that 10% penalty is nothing. You can recoup that in 6-18 months.

It's a no brainer... the numbers don't lie. Do the math.

Yes taking money out of your retirement account is a sin for most people.

Just make sure you don't buy jet skis and put it in cash flowing assets like rentals or syndications. Or start a business if your are exceptional at business.

QRPs or qualified retirement plans (Solo 401ks, checkbook IRAs, etc) are the answer to that person with a bunch of money in their existing 401K or IRA.

It's pretty typical that someone listens to the Simple Passive Cashflow podcast, signs up for the investor club, and books a free intro call has 200k-600k locked up in garbage retail investments AKA 401K.

Stop whatever you do don't roll over an old employers 401K into your current employers 401K. If you have money in your current employers 401K its stuck there. You need to quit your job. Well there is this one obscure tactic if you live in a Red state that could work but for you it's easier to take a loan from the existing 401K to start investing in hard assets.

If you are conservatively using prudent leverage and finding decent deals there is no reason you should not be able to retire in 10 years or less and thus negating the very reason for these accounts that you can't touch till you are old.

When you have money in these accounts it sounds good that you are not taxed on gains but you are restricted from getting a Fannie Mae loan. Using SDIRA's you have to get second tier financing options because its more risk for the bank, for example, a Roth IRA can buy real estate on leverage, however, will need a non-recourse loan which is often a fraction high-interest rate and lower LTV. No Bueno!

Caveat: If you are late to the game and already have a 401k over $100,000 then you should convert it to a solo401k. At that point, you should think about putting it into a syndication since you are restricted on how you can leverage it.

I work with people to come up with a strategy to withdraw their 401k to minimize taxes. Sometimes we need to get creative with oil & gas investments, land conservation easements, or bonus depreciation.

To start, I am no financial advisor but can give some beneficial clarity.

Everyone must critically evaluate their financial plan to achieve wealth. It is good that you are doing this. There are so many different routes you can take. 

Continue your current path

Invest in real estate actively or passively outside of minimal 401k contributions(Rental, Flip/BRRRR, Syndication, REIT, etc)

Invest in real estate with 401k contributions 

Some would even say invest in a life insurance plan (Probably shouldn't do this)

No one can give you the best answer because your financial situation is something we are unaware of.

Investing in real estate is a good option amongst other investments. The tax advantages are what make it so great. Depreciation is probably something you are already aware of, also the ability to write off 25k to personal income depending on tax bracket

My advice: Be very critical of who you listen to. And once you fully understand the benefits of real estate: Appreciation, Mortgage paydown, Cash flow, Tax Benefits (Massive), make your decision. The best decision you can make is to invest! I wish the best for you in your investment journey!