Rules for liquidating roth ira
Most financial advisors and older folks will tell you that it’s better to contribute to your 401k and let it grow tax-deferred.
Meanwhile, the younger folks in pursuit of early financial freedom are skeptical of this advice—and rightfully so.
At 25 years old, you are probably taking your first steps in your journey towards financial freedom. Lenders consider your 401k as part of your reserves, so losing ~40% of it through liquidation will be a huge hit.
Age 60 seems very far away, so you are likely tempted to take that out now and use it to expedite your journey towards financial freedom—especially after seeing the two tables below: Given the assumptions mentioned above, the 25-year-old will have to earn 8.50% annually on his/her liquidated 401k to achieve the same type of returns as they would on their current 401k. Absolutely, especially with the wealth of knowledge here on Bigger Pockets and the four wealth generators of real estate. Not only that, but using what you have left for a down payment will be a double kill. In the analysis above, we assume your 401k is handled by a financial advisor and is diversified amongst a plethora of mutual funds, index funds, bonds, stocks, etc. The analysis suggests that despite the tax-deferred earnings, there is a high probability that you can attain a better annual return on a liquidated 401k (8.50% ) by investing it yourself.
There is a high probability that this will either prevent you from taking out a conventional loan or at the least increase the cost significantly. Fortunately, there is a way for you to invest in these same high-yielding assets (i.e.
real estate) with your 401k without taking the penalty.
As a disclosure, I am neither a financial advisor nor a CPA.
This is for investment property only so most lenders will require at least 15% down and sufficient cash flow. You will be paying your solo 401k interest of approximately 4.0%.
Rather than having your 401k held with a financial advisor and being diversified amongst asset classes that return ~7% annually, you can move it to a self-directed IRA or a solo 401k to manage yourself.
With these self-directed accounts, you can invest in anything.
Please call us at 800-433-9196 and provide reference number SWAF-18.df9b7b5c.1514700126.9b5c444.
Sep-IRA vs Solo 401K If you work as an independent contractor, meaning you get a Form 1099 each pay period instead of a W-2, you’re responsible for your own benefits, including a retirement plan.