liquidate 401k/IRAs? (by Jeff [CA]) Mar 6, 2012 9:52 AM|
liquidate 401k/IRAs? (by Laura [MD]) Mar 6, 2012 10:13 AM
liquidate 401k/IRAs? (by Jim in O C [CA]) Mar 6, 2012 10:20 AM
liquidate 401k/IRAs? (by Mike [TN]) Mar 6, 2012 10:28 AM
liquidate 401k/IRAs? (by george [IL]) Mar 6, 2012 11:00 AM
liquidate 401k/IRAs? (by alfalfa [NY]) Mar 6, 2012 11:18 AM
liquidate 401k/IRAs? (by Sparta [OR]) Mar 6, 2012 11:46 AM
liquidate 401k/IRAs? (by REd [GA]) Mar 6, 2012 11:47 AM
liquidate 401k/IRAs? (by Jeff [CA]) Mar 6, 2012 11:49 AM
liquidate 401k/IRAs? (by Moshe [CA]) Mar 6, 2012 12:09 PM
liquidate 401k/IRAs? (by BRAD 20,000 [IN]) Mar 6, 2012 12:22 PM
liquidate 401k/IRAs? (by Jeff [CA]) Mar 6, 2012 12:56 PM
liquidate 401k/IRAs? (by Mike [TN]) Mar 6, 2012 1:30 PM
liquidate 401k/IRAs? (by Laura [MD]) Mar 6, 2012 1:48 PM
liquidate 401k/IRAs? (by p m h [TX]) Mar 6, 2012 2:02 PM
liquidate 401k/IRAs? (by OKHMBLDR [OK]) Mar 6, 2012 2:03 PM
liquidate 401k/IRAs? (by Echo [GA]) Mar 6, 2012 2:32 PM
liquidate 401k/IRAs? (by Katherine [TX]) Mar 6, 2012 2:57 PM
liquidate 401k/IRAs? (by Ken [NY]) Mar 6, 2012 3:57 PM
liquidate 401k/IRAs? (by Jules [MO]) Mar 6, 2012 4:01 PM
liquidate 401k/IRAs? (by Robert J [CA]) Mar 6, 2012 5:21 PM
liquidate 401k/IRAs? (by Jeff [CA]) Mar 6, 2012 6:10 PM
liquidate 401k/IRAs? (by matt [TX]) Mar 6, 2012 6:11 PM
liquidate 401k/IRAs? (by Jeff [CA]) Mar 6, 2012 7:04 PM
liquidate 401k/IRAs? (by Moshe [CA]) Mar 6, 2012 8:22 PM
liquidate 401k/IRAs? (by shawn sisco [MO]) Mar 7, 2012 3:43 AM
liquidate 401k/IRAs? (by Keith [PA]) Mar 7, 2012 6:39 AM
liquidate 401k/IRAs? (by Jeff [CA]) Mar 7, 2012 8:57 AM
liquidate 401k/IRAs? (by Keith [PA]) Mar 7, 2012 9:33 AM
liquidate 401k/IRAs? (by dex [OH]) Mar 7, 2012 10:11 AM
liquidate 401k/IRAs? (by Dan [WI]) Mar 7, 2012 12:33 PM
liquidate 401k/IRAs? (by NC INVESTOR [NC]) Mar 7, 2012 10:06 PM
liquidate 401k/IRAs? (by Jeff [CA]) Mar 8, 2012 11:02 AM
liquidate 401k/IRAs? (by Dan [WI]) Mar 8, 2012 1:45 PM
liquidate 401k/IRAs? (by BRAD 20,000 [IN]) Mar 8, 2012 8:22 PM
liquidate 401k/IRAs? (by Dan [WI]) Mar 8, 2012 8:26 PM
liquidate 401k/IRAs? (by Jeff [CA]) Mar 9, 2012 9:05 AM
liquidate 401k/IRAs? (by cs [NY]) Mar 9, 2012 6:47 PM
liquidate 401k/IRAs? (by Jeff [CA]) Mar 12, 2012 8:41 PM
liquidate 401k/IRAs? (by Jeff [CA]) Posted on: Mar 6, 2012 9:52 AM
My wife and I are considering liquidating a substantial portion of or 401ks/IRAs (or at the very least borrowing heavily form our 401k/403b). Yes, I know liquidating is in direct violation of well established dogma and I’ve read people’s opinions on older threads here. But the proverbial iron is hot and I want to strike. There has never been a better time to invest in RE and the window is closing, in my opinion. It will get harder soon.
We’ve got 3 leveraged properties now and I intend to be at 10 within 2 years. I’m 43 and my wife is 39. Combined we have about $170,000 in 401k/403b, $120,000 in traditional IRAs, and $135,000 in ROTH IRAs. We stopped contributing to all of these a year ago (except to my wife’s 403b to take advantage of employer match……I get no match) and we’ve used the extra money to buy RE. I do not like the "hold your hands and pray the stock market does not tank when you need the money in 20-30 years" strategy. ROTH liquidation is not high on the list, but the 401k/403b and traditional IRAs are fair game to me. While we could convert to SD IRAs and buy RE we do not get cash flow today, which is what I want. Yes, we pay taxes and a 10% penalty. But big deal. We would have paid taxes on the principle had we not put it into the 401k/403b or traditional IRAs anyway. We’ll pay taxes (regular income!) on the gains when we withdraw it and I’m not convinced that given our country’s debt, deficit, and the fact taxes are lower than any time in history that we’ll be in an appreciably lower tax bracket in 20-30 years than we are now. With the RE, on the other hand, we pay long term cap gains when we sell, or we pay nothing on the gains via a 1031. And the 10% penalty? With an even half way decent RE purchase we get that back in a year or two. Along with my day job, part of my income is derived from self employment and if I chose to replenish the IRA after we get our 10 leveraged, cash flowing, properties I can put $12,000/year into a SEP IRA all funded by a small portion said cash flow.
One other bit of information. Baring something totally random and highly unlikely we will inherit several million ($10+) worth of equities, and real estate including income producing properties. This may be next year, this may be in 30 years, but in either case I view THAT is our retirement, not what we have in the aforementioned retirement accounts, so I want to use this money to get more income in the here and now. Life is short. Am I insane?
liquidate 401k/IRAs? (by Laura [MD]) Posted on: Mar 6, 2012 10:13 AM
This is not a path I would follow or advocate. --108.18.xxx.xx
liquidate 401k/IRAs? (by Jim in O C [CA]) Posted on: Mar 6, 2012 10:20 AM
My CPA high school friend over leveraged in real estate in the 80's and lost everything and almost his house. Don't do it. It can cost you your health, your marriage and countless sleepless nights. If you want to buy 8 settle for 2 or 3. --72.25.xx.xx
liquidate 401k/IRAs? (by Mike [TN]) Posted on: Mar 6, 2012 10:28 AM
OK, let's do the math first. You have about 300k in 401k/IRA. Take 30% of normal tax rate, then 10% penalty, you are left with 180K. (the tax rate could be higner if you do all that within a year since your income for that year will be 180k plus your current income, which may push you into a even higher tax rate). If you levelage that 180k, you may be able to produce income of 18k per year. Remember, this is taxable income.
My problem with that is that you lose about 120k money that could be working for you right away. Say in the long run, you have 5% return of your 401k/IRA, you would have 5% of 300k, which is about 15k. This is not taxable money till you take them out. They can work for you right away. 5% over long run is not that hard to do, I mean for 20 years, you maybe able to get average around 8% if you have a good mutual fund. If it's 8%, then the numbers are working against you since you would have 24k tax defered income working for you right away instead of 18k taxable income.
Since I'm not an accountant, the numbers may not be right and you really need to talk to your accountant about this.
liquidate 401k/IRAs? (by george [IL]) Posted on: Mar 6, 2012 11:00 AM
1. diversification diversification diversification!!
2. not very wise to have all your money in one asset
3. i dont feel we have seen the bottom in real estate yet and you are already behind the 8-ball if you have to pay taxes and penalties to get to that ira/401k money --144.188.xx.xx
liquidate 401k/IRAs? (by alfalfa [NY]) Posted on: Mar 6, 2012 11:18 AM
Here in NY, I'd heard an IRA can be invested in RE (no penalty) never looked into it. Check it out. --69.118.x.xxx
liquidate 401k/IRAs? (by Sparta [OR]) Posted on: Mar 6, 2012 11:46 AM
That is a huge gamble. How long did it take you to save all that money for retirement? How long would it take you to save all that money over again if you lost it?
I don't want to be a Debbie Downer but think about this;
how much time and energy do you invest in your 3 rentals? 2 hours per week? 10 hrs per month? I know it isn't constant and seems like you do nothing for a large portion of the time, but it is still something. Now multiply that by 3. Then think about the maintenance costs of 10 rentals and the ins and the taxes and what ever else you would pay to have those. Now thing about how intrusive the gov is on your business. Now multiply that by how ever much more you see them getting in the future. I can't paint, tear out a wall, change a light switch by myself. I have to have a licensed professional do this for me. Oh, if you get involved in Sec8, then you have far more to deal with. Rent control?
Your money is just sitting there and it may or may not increase in value. Rentals are not a sure investment either. Mine have ALL lost value in the last 4 years and my maint, taxes and insurance have skyrocketed. It will take a very long time for them to get back to the value they were at in 2008 all the while I am going to have to pay to keep them. I really don't think our values are going anywhere soon.
My best advice to you is to seek way more advice before doing something like that. --69.59.xxx.xxx
liquidate 401k/IRAs? (by REd [GA]) Posted on: Mar 6, 2012 11:47 AM
First of all I'd roll everything you could without penalty into a self directed 401k and put that into RE if that is what you want to do. Then I would borrow as much as I could of the remaining (as long as you have a way of beating the interest charges AND a way of paying the loan off if you suddenly lost your job). THen and only then if I found something that would make it worthwhile to take a 40% haircut on the rest would I cash that portion out. Remember in percentage terms your returns have to be much higher to make up for losses.
I'd also look into companies that loan to self directed IRAs and look into putting more money into your Sep IRa or similar. You can put up to ~$49k if you have your own company and have enough profits. --65.12.xxx.xxx
liquidate 401k/IRAs? (by Jeff [CA]) Posted on: Mar 6, 2012 11:49 AM
"If you levelage that 180k, you may be able to produce income of 18k per year. Remember, this is taxable income."
Mike, how is that taxable? The depreciation will totally eliminate the gains and I'll have plenty of carry over depreciation to use if/when I sell.
And yes, if I liquidate in one fell swoop the tax rate would be higher. But if done in a smaller chunk needed only to jump on some great opportunity, perhaps not. I just don't look at the 401k/IRAs as sacrosanct given the windfall we will get in the future via inheritance. Plus, we will pay substantial taxes when we withdraw anyway. The question is do I want what I perceive to be better returns in RE with cash I can access today (not in 20-30 years) and pay no taxes (1031) or LT cap gains on the RE equity in 30 years.? --12.204.xx.xx
liquidate 401k/IRAs? (by Moshe [CA]) Posted on: Mar 6, 2012 12:09 PM
In evaluating strategy, Mike assumes 5% growth in a 401K/IRA account. Whether the funds are contained within a tax-deferred shell or not makes very small difference compared to the yield that the funds bring in.
Such models, even such simple ones, are useful to help to understand different strategies. He should have included the fact that the 401K funds are subject to ordinary income tax upon distribution. If you wait until retirement to take the distribution, you need to take into account what your tax bracket will be after 70.
5% growth year-over-year (on average) over term >= 20 years, or even 8%, is rather a small estimate of the potential in market-based investments, but success is determined not by passage of time but by skill in investing. Bluntly put, it depends on knowing how to invest. If you don't feel competent at that, you shouldn't even get involved, and the 401K strategy (actually, a savings account with gadgets) is not a very good idea.
liquidate 401k/IRAs? (by BRAD 20,000 [IN]) Posted on: Mar 6, 2012 12:22 PM
Liquidate IRAs? No. Period.
Don't let ANYONE talk you into it for ANY reason.
A significant part of your financial planning MUST include retirement, right along with your daily bills. You have a good "start" on it, so don't mess that up.
USE the rules to your advantage. With $425K you can buy $800K worth of property right now which could yield something like $7-8000 per month.
Roll them over to a self directed IRA/ROTH with Equity Trust Co. trustetc dot com.
Read all about it there.
Use use ALL your IRA money to invest in RE without losing a penny nor paying a penny in taxes.
You can start withdrawing at age 57 1/2. At 43, that's right around the corner.
liquidate 401k/IRAs? (by Jeff [CA]) Posted on: Mar 6, 2012 12:56 PM
"A significant part of your financial planning MUST include retirement, right along with your daily bills. You have a good "start" on it, so don't mess that up."
Totally agree with the above statement, BUT if we're going to get a $10 million+ inheritance including paid for, income generating, real estate, is the idea of using the "retirement" money to generate cash flow today not reasonable? I want to quit my lousy day job sooner rather than later and get freedom. Life is too darn short and we spend $25,000 after tax dollars/year on child care. Its getting old.
And how about this? Convert the traditional IRAs to a SD Roth. Pay the taxes. Buy RE and draw out the cash flow (ostensibly the principle) for use here and now and let the asset appreciate and build equity. --12.204.xx.xx
liquidate 401k/IRAs? (by Mike [TN]) Posted on: Mar 6, 2012 1:30 PM
'Convert the traditional IRAs to a SD Roth. Pay the taxes. Buy RE and draw out the cash flow (ostensibly the principle) for use here and now and let the asset appreciate and build equity.'
Well, if you do that, then you are paying 40% tax for every dollar you take out of that account. I don't think there is depreciation to off set your tax bill in IRA account.
Don't count you chicken before they hatch. You may be getting that inheritance but till you do, don't mess up your retirement income. Who knows what will happen to that since it is not your money. The person has that 10 million may decide to go crazy and marry an 18 year old girl and leave it all to her. I know a doctor did just something like that and his kids were not happy with the new young step mom laughing all the way to the bank.
You can not roll over your current company's 401k into SD IRA. You can roll over your previous 401Ks. You really need to hear what the expert say about this by talking to your accountant. Many people have this me/now mind set get burt by things not going as their plans. Everytime I see the commercial "It's my cash and I want it now!" It make me thinking how long that money would last for these guys. --198.51.xxx.xxx
liquidate 401k/IRAs? (by Laura [MD]) Posted on: Mar 6, 2012 1:48 PM
Now that I am older and have lived a few years I wish I had a dollar for everyone who thought they were getting a big inheritance and didn't. You need a much better retirement strategy than an inheritance. --108.18.xxx.xx
liquidate 401k/IRAs? (by p m h [TX]) Posted on: Mar 6, 2012 2:02 PM
borrow from the 401ks. max loan is 50% of vested balance or $50,000 from each. that's how I got started years ago. --209.163.xxx.x
liquidate 401k/IRAs? (by OKHMBLDR [OK]) Posted on: Mar 6, 2012 2:03 PM
I worked for a major media company for 25 years, and they matched my 401k up to 6%, so for several years I put in the maximum I could (Note: the 401k didn't come along until about 1985 for my co. In 1999 the company was sold, so I had to decide what to do with my 401k money. (The new company fired all the managers so I was looking for work).
I withdrew all the cash, paid the penalty, paid the taxes, and put the rest to work in real estate. That envolved building new homes and doing flips.
I'm 63, and I've never looked back and regretted using that money. For me it worked out well and without that cash infusion into my real estate business I would still be working 40 hours for someone else. My original 401k money has increased in value many times over, and made me a good six figure income for the past 10 years, plus it's given me the rental assets that are my retirement, and the income from the rentals far exceeds what my 401k would have produced.
Anyway, it has worked for me. Would I recommend you do the same thing? It all depends on your ability to take a small asset and grow it into a larger asset. If you have faith in yourself, then move forward. --98.162.xxx.x
liquidate 401k/IRAs? (by Echo [GA]) Posted on: Mar 6, 2012 2:32 PM
I was going to suggest what PMH stated. I plan on borrowing against my 401Ks. I think it has to be paid back with in 5 years though. I wouldnt take my 401k monies. I am over heavy with RE as it is now. But my 401ks are making nothing, I mean nothing as they sit in a money market account. However I still see them as a part of my investments.
If borrowing against them isnt enough money for you or the pay back time is too short, then I would highly suggest you check in SD IRAs, they can be a pain will all the rules and you have to be hands off as far as repairs go. But with the money you'd lose in withdrawing your 401ks, you could hire out for awhile. --98.94.xx.xx
liquidate 401k/IRAs? (by Katherine [TX]) Posted on: Mar 6, 2012 2:57 PM
Jeff, What about this: Ask the person from whom you expect to inherit assets to back you in a limited partnership or some kind of entity like that. That way the agreement could be set up to allow you to use capital to accumulate real estate, and the share of the partnership, entity or whatever could then become yours (or the loan forgiven if not already paid off) upon your benefactor's death.
Something like this would accomplish several things.
1. Give you capital to invest in the market (I'm with you I think the time is now and this market is a serious opportunity like we may not see again in our working lifetimes - I too am 43).
2. You avoid the punitive costs of cashing out your IRA and the loss of depreciation if investing through an SD IRA.
3. You shield the partnership assets of your benefactor from probate and estate taxes (which will take an enormous bite - I hope 10 mil is the after tax amount, but if its not, count on 3-5 million if the estate has to go through CA probate)
4. You get the benefit of leverage with OPM without the big brother intrusion and regulation of institutional money.
The trick obviously, is getting your benefactor to agree that you are smart guy and that this is a worthwhile risk. That may be MUCH harder than doing something with your IRA. But if the benefactor is not using the capital and would like the returns, and if you are a good risk, then this seems like its worth a conversation. --64.233.xxx.xxx
liquidate 401k/IRAs? (by Ken [NY]) Posted on: Mar 6, 2012 3:57 PM
Something to consider on a self directed IRA,the understanding I have is you have to be 59 1/2 to start collecting or have the account 5 years and you can start taking substantially equal monthly payments so if you have had your current account 5 years roll some money to the SDIRA buy houses and move back to the other account what you need and tale substantially equal payments from there.Never really looked into it since I didn't need it but may be worth your time to look into --67.252.xx.xx
liquidate 401k/IRAs? (by Jules [MO]) Posted on: Mar 6, 2012 4:01 PM
Very nice suggestion, Katherine. --24.171.xx.xxx
liquidate 401k/IRAs? (by Robert J [CA]) Posted on: Mar 6, 2012 5:21 PM
I know of a few very smart people that did the same thing you're trying to do! Except they are now bankrupted and living from hand to mouth. Retirement accounts are protected from law suits, real estate is not! These people created one LLC and held title to all of their propertys in it. One little law suit and the plaintiff got ownership of everything to pay off the judgement. Don't put your eggs in one basket. --173.58.xxx.xxx
liquidate 401k/IRAs? (by Jeff [CA]) Posted on: Mar 6, 2012 6:10 PM
"Well, if you do that, then you are paying 40% tax for every dollar you take out of that account. I don't think there is depreciation to off set your tax bill in IRA account."
Mike, how would I be paying 40% on all I take out? If I have $100k in a traditional that I convert to a ROTH and pay 30% I've got $70k in the ROTH as my after tax contribution. Can't I take that out immediately tax free if I desire? If I buy a $70,000 house for cash and the CCR is 10% I can withdraw $7k/year for 10 years, $3,500 for 20 years, etc, up to the amount of the $70k principle tax free. Am I missing something? Any early withdrawal above that initial $70k and I do get hammered on taxes.
And several on this thread point to the fact I'll have to pay taxes if I liquidate the 401k or IRA as if I don't have to pay takes if I don't withdraw early. I will have to pay taxes upon withdrawal in 20+ years and I find it VERY hard to believe that my tax bracket will be lower then than now. Taxes are lower than they have been since the institution of a progressive tax system almost 100 years ago. Our debt and deficit are astronomical and we have entitlements in the form of Medicare and Social Security (which I'll get none of) that can't be paid for. Under these circumstances the conventional wisdom that dictates I'll be in a lower tax bracket in 20-30 years sounds crazy. What Kool Aid am I not drinking?
Borrowing from the 401k and 403b is on the table as well. Can't do it this year though as it will totally screw up our debt to income ration and we won't be ale to get the loans for #4 and #5 this year. We need to wait until next year when our first two show up on the 1099 for the second time.
Katherine, your plan is great and was the plan before a death in the family. May still happen, but not so likely now as the surviving spouse was not the money savvy one.
I can appreciate the comments about not counting on anything in terms of inheritance (conservatively $10+ million after taxes Katherine) as anything can happen. I agree. But some things are likely to happen, others very unlikely. The scenarios that would lead to no inheritance are HIGHLY unlikely to occur. I tend not to let highly unlikely outcomes guide my decision making process, but perhaps I'm just too much of a risk taker. Perhaps liquidating retirement accounts is brilliant, perhaps is stupid, but in either case I cannot rationalize working under the assumption the inheritance will not ever happen.
liquidate 401k/IRAs? (by matt [TX]) Posted on: Mar 6, 2012 6:11 PM
stock market has been bad for a decade. historically, it's been decent around 10%.
for rental here, you can about 6-8% return if you pay your rental house with 100% cash. with all the work going in, it doesn't make sense once stock market takes off (if it ever).
I do it for diversification. I have fair share in stock and bond market.
liquidate 401k/IRAs? (by Jeff [CA]) Posted on: Mar 6, 2012 7:04 PM
Brad 20,000, I've had lots of people recommend investing in RE in their IRA. My accountant is actually against it on the grounds you lose the depreciation deduction. That's big. Given the loss of this big RE benefit, how outside of the legal protection is it better than just owning the RE outside of a retirement account where you get the depreciation and can entirely avoid paying taxes on the gains via a 1031? --76.14.xx.xx
liquidate 401k/IRAs? (by Moshe [CA]) Posted on: Mar 6, 2012 8:22 PM
"stock market has been bad for a decade."
liquidate 401k/IRAs? (by shawn sisco [MO]) Posted on: Mar 7, 2012 3:43 AM
From reading your post, I imagine that you are motivated to liquidate your accounts because you have some killer deals lined up. If you follow through and do as you want, that money will soon be invested and you will again be out of ready cash.
I suggest that you take this opportunty to put some new tools in your toolbox. Get that Self-directed Roth account set -up today. Learn some strategies how to best utilize it....think options, other paper assets.
Buy and hold rental can be real good- but it is not the only game in town.I really wasn't too excited about the SD Roth IRA or SEP accounts either....because I had a case of tunnel vision and really had not thought through the deals that I would do inside the Roth that made no sense to do outside the Roth.
liquidate 401k/IRAs? (by Keith [PA]) Posted on: Mar 7, 2012 6:39 AM
No one else is mentioning this but I actually think your best option would be to pull out all the contributions you made to your Roth IRA's over the years. As long as the Roth's have been open more than 5 yrs, which they pretty much had to have been to be at the amounts you state, you can take back any and all contributions you made to the Roth's tax and penalty free. I'd do that before paying tax and penalty on a tax-deferred vehicle. At least that leaves the 401k, IRA's, and gains in the Roth's invested for retirement. If you still needed funds, then consider borrowing from the 401k or taking distributions, but I'd definitely pull my Roth contributions before going either of those other directions. --173.163.x.xxx
liquidate 401k/IRAs? (by Jeff [CA]) Posted on: Mar 7, 2012 8:57 AM
Kieth, that's an interesting point. Pulling principal from the ROTHs is totally tax free, but I've also thought of about how that cuts both ways. Everything I might pull out after 59 1/2 is tax free, no mandatory distributions, and with limits of $5000/year of contributions it will be difficult to make up for what was taken out. But again, if there is some sweet deal I can't pass up on I could do that or borrow from the 401k/401b.
As always, thanks everybody for the insights. --12.204.xx.xx
liquidate 401k/IRAs? (by Keith [PA]) Posted on: Mar 7, 2012 9:33 AM
At 50 you can put in $6k/yr, plus the gov has to raise the contribution limit sometime, it wouldn't make sense to leave it at $5k forever. Personally, I think that's the biggest Roth benefit for anyone who actually might need the money they're contributing. I did it to buy my primary residence (though I was able to put it back within the 60 day window). The tax free growth is great, but my favorite thing is the option to take back contributions with no questions asked and no penalties! I'd do that before paying a 10% penalty every day of the week, including Sundays when I stop thinking financial thoughts:) --173.163.x.xxx
liquidate 401k/IRAs? (by dex [OH]) Posted on: Mar 7, 2012 10:11 AM
convert your trad ira to roth then you can take out the principal ? I dont know if that is ok or not you can ask your CPA --216.201.xx.xxx
liquidate 401k/IRAs? (by Dan [WI]) Posted on: Mar 7, 2012 12:33 PM
I'm no expert on such things, but I have a few comments:
- $10M+ after taxes waiting for you? And you're still worried about moving ~$200k around?! I wish I had your problems. ;-)
- You mentioned that your accountant said something about lack of depreciation if you use purchase the property within the IRA's. I don't know...but what I DO know is that most accountants are not experts in the inner-workings of those IRA rollover tools. My company works with a few IRA rollover companies and invariably their accountants/attorneys - who talk with the IRS on a regular basis and know the laws inside and out - know 10x more than the average accountant or CPA on such matters. Again, I don't pretend to be an expert, but a call to one or two of these places might shed some other light on it.
- I'm with one of the other posters that I just don't quite see how the math is going to work for you in any quick way. So you get some depreciation (you're spending money to "get" the depreciation, but that's another discussion), and maybe $15k or $20k in immediate cash flow. Since you're paying $25k in child care and may inherit millions, I'm assuming you live a lifestyle that needs more than $15k or $20k to support it. Even as you start to increase those rents 1% or 2% per year, it's going to take a long time before that free cash flow supports your lifestyle. And if you're going to wait for the property values to rise, you're still taking a risk there...what if they go down? What if they go sideways or just crawl up for the next 5-10 years, and if you sell by the time you pay realtor fees are you that much further ahead?
I too think this is a prime buying time, but there's still risk involved. Personally, I believe in diversification. We have our assets split between real estate, IRA's/stocks and equity in insurance policies. I used to swing for the fences when I was younger, and got burned. Now I swing for singles and doubles. But we all have different risk tolerances. After attending a recent economist's presentation to some wealthy business owners, I'm in line with his thinking. He said the stock market is going to soar for 12-18 months, then drop for another 12 months, then will likely be VERY strong for 2-3 years (think late 90's). FWIW he's also predicting a major recession ~2019 and a MAJOR depression around 2030. He said real estate looks attractive, but it's a buy and hold investment for 10 years. "If" some of this comes true, it would seem you'd be better off leaving your money parked in the market via the 401k/IRA's for another 15 years (maybe move to bonds in 2018?!). --173.30.xx.xxx
liquidate 401k/IRAs? (by NC INVESTOR [NC]) Posted on: Mar 7, 2012 10:06 PM
I converted every IRA and 401K iI had nto self directed IRA without paying a cent in penalties. For those who said CPA's are not fluent in these instruments are correct.
You can buy just about any kind of RE for your portfolio without penalty but it is imperative that you find a reputable Self Directed Custodian.
A slip up in staying compliant with IRS rules and regs will cost you dearly. I suggest you look at "selfdirectedira.org" to see all of your options.
A standard 401 /IRA will never earn the returns that a self-directed acct. will On the other hand no IRA will achieve the highs of a solid stock portfolio nor will it ever reach those lows. --173.188.xxx.xxx
liquidate 401k/IRAs? (by Jeff [CA]) Posted on: Mar 8, 2012 11:02 AM
Dan, my accountant has over 150+ properties and has been in RE for almost 30 years. He seems pretty certain you lose depreciation and will pay regular income tax (not LT cap gains) on sales of RE held in a traditional IRA. From what I've read on line this is true.
The goal of the immediate cash flow from RE (vs. no cash for 20+ years from retirement accounts) is to enable either my wife or I to quit our day job. Probably me since I'm the one who does all the RE and her job is WAY more secure, lower stress, and has better benefits including virtually free college for our kids if she's still there in 10 years or so. If one of us was home we would not be paying $25k in mostly post-tax money for other people to raise our kids. That savings plus the extra cash flow from RE would practically cover the lost W2 income and equal a far better quality of life in the here and now. If property values rise in the not too distant future and there is an opportunity to sell for a profit that's a bonus and I've got to believe we're closer to the bottom than the top. More cash flow today buys us freedom and we've got a bit of an insurance policy for the future in the form of the highly probable inheritance, so I can't help but consider certain unorthodox options. --12.204.xx.xx
liquidate 401k/IRAs? (by Dan [WI]) Posted on: Mar 8, 2012 1:45 PM
According to a friend of mine, who owns one of these self-directed IRA/rollover companies, your accountant is wrong. Saying he owns real estate, and he's an accountant, doesn't make him an expert on self-directed IRA's. I've found that many accountants - and attorneys - think they know a lot about a lot of things, until they run into an expert.
I asked her about this today after seeing your post. Here's the question I posed to my friend: "If I were to buy a piece of real estate using a self-directed IRA, do I pay capital gains taxes on that property when I sell it – or is it protected from an immediate tax hit because it’s in the IRA? Also, do I pay capital gains tax rate, or income tax rate?"
Here's her reply: "If you buy and sell real estate within your self-directed IRA those capital gains are protected from taxes until you begin taking distributions - required at age 70 ½ ."
This lady employs about 80 people that do nothing but help people set up and maintain self-directed IRA's. She also employs a couple attorneys who visit D.C. quarterly to make sure they're getting regular updates from the IRS. It's hard to imagine, but she said they receive >4,000 leads/month of people looking to use their IRA's to buy property, a business, etc.
Sounds to me like you have your mind made up, which is fine. Again, it wouldn't be my cup of tea, but I understand what you're trying to do. Purpose of my post is just to make sure you have an accurate understanding of self-directed IRA's. A call to an expert might be in order if you were inclined to learn more. --69.67.xx.xxx
liquidate 401k/IRAs? (by BRAD 20,000 [IN]) Posted on: Mar 8, 2012 8:22 PM
This will either inspire you or make you mad. I hope for a little of both!
If I drank beer and we were buddies, I'd clink my bottle to yours and say "Dude, you're not hungry. Anxious yes. Hungry no."
I'd say "Face it, you have what you want. 2 incomes, savings, kids...But ...You need a DREAM. Not just a goal but a real dream - something you cannot live without, that propels you forward, that keeps you up at night making notes, that makes you say "no one can stop me"! that you can taste and smell, and life is not complete until you have it."
When the dream is big enough, the facts don't count.
Instead of complaining about the cost of childcare, I'd love to hear you say "I'll never let an uneducated, thrice divorced, minimum wage, "couldn't get a job at Popeye's Chicken" worker replace me as a parent again."
I'll be a MAN and bring my wife HOME! Not let her youth be drained by a boss/job.
Come heck or high water I'll be a free man. Roll down the car window and yell FREEDOM!!! into the night as you speed 4 hours back trying to stay awake and get to work on time, after meeting with a mentor/investor all night who agreed to help you.
Get Dave Ramsey's Entre Leadership and Total Money Makeover books.
It does NOT take money to make money in this business. Having money gets in the way. It takes education, contacts, and guts.
Even with more income, you will not be FREE until you get M.E. or M.E. -
Motivated and Excited
Mad and Energized/charged
liquidate 401k/IRAs? (by Dan [WI]) Posted on: Mar 8, 2012 8:26 PM
Brad, have you considered going on one of those inspiring speaker tours? You know, the ones that feature Dick Vitale, Colin Powell, Zig Ziglar, etc. You're very inspiring! --173.30.xx.xxx
liquidate 401k/IRAs? (by Jeff [CA]) Posted on: Mar 9, 2012 9:05 AM
Dan, I agree and know that the gains of a RE sale within the IRA are protected from taxes, but when you pull income out of the IRA you get hit with regular income tax. That's what I meant.
Brad 20,000. Inspired? I guess so. Mad? Not really. I'm pretty thick skinned.
And perhaps chivalry is just dead in CA, but I don't buy the "My wife must quit her mellow, no stress, work at home one day a week, job while I bust my ass at my day job and spend too many nights and weekends managing apartments and trying to build more RE assets." She'll outlive me by 30 years, so I can't be too broken up over the idea of her working some no stress job for a few more years while I build the empire. --12.204.xx.xx
liquidate 401k/IRAs? (by cs [NY]) Posted on: Mar 9, 2012 6:47 PM
Wow Jeff, you seem both bitter and entitled. FWIW, I think liquidating retirement funds that you will have to take both tax and penalty hits on ain't smart. You should probably get a little historical perspective on RE as an investment and I don't mean taking a 10 year view --24.105.xxx.xx
liquidate 401k/IRAs? (by Jeff [CA]) Posted on: Mar 12, 2012 8:41 PM
You're correct cs. I am both bitter and entitled. I will make this happen no matter what. My wife says I'm "obsessed". I'm fine with that. Come hell or high water I'm quitting my day job in less than 2 years. It is a total waste of my time. We'll have 10 properties, one chill day job, and a part time property management gig that will leave us with ~$40-$50k/year in disposable income after expenses (mandatory and discretionary). I'm willing to take my chance with that. --76.14.xx.xx