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Should I cash out my IRA to buy investment property?

I have two retirement accounts, one that is my main account that I'm contributing to and on track for retirement, but I also have another IRA from a previous employer worth about $330,000. I'd like to cash that out and buy some investment property, but I'm not sure about taxes and penalties. I don't want a huge tax bill at the end of the year. I'm currently in the 28 percent tax bracket, with an AGI of $250,000. What should I do to minimize losing money?

Retirement, Investing, IRAs, Taxes
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June 2018

The easy answer is don't do it. But I don't think that is a fair answer. Finding the right answer will take a lot of equity - sweat and cash equity (and possibly debt) to determine the answer to that.

In fairness to investing in securities, real estate, or whatever, the real answer lies in doing value analysis i.e. net present value analysis and IRR to start. You will need to compare the value proposition of leaving your money in your IRA vs the value proposition of taking it out and investing in real estate. That analysis will have to include after-tax cash flows which makes it a bit harder.

I would add one more thing. If you are chomping at the bit to try this and will do this regardless of advice provided please take this into consideration - do NOT overextend yourself. Let's say you want to invest in a multifamily house to rent out, you can purchase ONE property. Using debt (mortgage) and equity at a ratio of 75%/25% will greatly reduce the cash equity out of your IRA (assuming you don't live in major metro area with crazy property values). And if the investment property isn't meeting your return expectations then at least you didn't sacrifice your entire IRA. If you find that it is and you enjoy it, then you may want to consider more investment properties.

June 2018
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