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Should You Cash Out Your 401k to Buy Real Estate? - YouTube
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should you take your money out of your
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401k in order to buy real estate that's
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a tricky one that's today's video let's
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dive in hey everyone I'm Clayton Morris
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long time real estate investor and back
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on the channel here to talk to you about
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401ks now the types of properties that I
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buy every year and every month frankly a
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lot of times I'm using my 401k money to
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do it it's a strategy that I use every
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year I pull money out as a loan to
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myself and buy a rental property but
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that's not what we're talking about
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today on the on the show we're actually
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talking about removing totally
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withdrawing your money from your 401k if
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your provider allows for it now I'm not
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a financial advisor I'm not an
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accountant and I'm not a lawyer so go
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seek your own counsel on this but my
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accountant who's one of the finest real
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estate accountants in the world and one
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of these smartest guys I've ever met and
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worked at the US Treasury believes that
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taking the penalty for withdrawing money
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from your 401k is worth it as long as
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the real estate investment is higher
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than the penalty makes sense think about
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this for a second if you're gonna remove
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money from your 401k in order to invite
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investment or rental property and you're
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gonna get a 15% return on your
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investment and the penalty for that tax
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year is 10% do the math for a second see
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what I'm saying that people get scared
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and what he likes to say is that at the
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end of the day most people are scared
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because Wall Street wants you to be
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scared they use words like if you call
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up your 401k provider and ask them about
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these things they'll use terms like fees
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and penalties you're gonna be penalized
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for taking money out of your 401k okay
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it's my money I put money in yes my
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company may or may not match it they
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pick the funds mostly mostly my company
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picks what funds some money manager that
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they've
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partnered with through my employer it's
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making thousands of dollars a year in
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fees because we're paying them to manage
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my money no no no no no most people do a
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401k because it's easy but is it great
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not terribly it's a good solution for
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maybe a portion of your income but think
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about it the average 401k in this
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country according to a recent story in
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Time magazine which broke down these
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numbers and this comes right from the
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Government Accountability Office folks
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this isn't my numbers the average 401k
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at retirement is only ninety six
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thousand dollars that's the average 401k
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at retirement what does that mean that
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means that when they're retired at 65
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they pull out that money they've only
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got ninety six thousand dollars what if
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your monthly expenses every month or
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five thousand dollars I mean you're only
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gonna be able to live off of that for a
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few years at most
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right what if you want to travel what if
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you want to buy gifts to the grandkids
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what are you gonna live to your only
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sixty-seven you see see the problem with
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the idea of the 401k the idea with the
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401k is that we're deferring our wealth
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until we're retired well what if I could
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put that money that's in the 401k to
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work for me now today what if I took
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forty thousand dollars and bought a
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rental property and now I've turned that
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forty thousand dollars into seven
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hundred dollars a month in cash flow
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from a tenant that's what I'm talking
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about folks so you go to your 401k
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provider and ask them that question what
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are the fees associated with me
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withdrawing this money today they're
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gonna give you a number and I think
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likely it's gonna be around seven eight
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nine or ten percent tax so you'll end up
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paying taxes on that money when you pull
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it out in that tax year that you took it
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out so it counts as income folks right
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you didn't pay any taxes putting it into
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the 401k right it's tax deferred that's
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the way that they try to lure you into
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this great well great now I'm gonna pay
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taxes years later when I'm in a higher
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tax bracket so think about that there
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they're trying to woo you with this idea
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that your 401k you're not gonna pay
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taxes on it until later when you're
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older when you're retired I don't know
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about you but I don't want to retire in
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a lower tax bracket right I want to
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retire wealthy which means I want my tax
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bracket while I'm young and older and
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older to be going up right up so now
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when I'm older I'm gonna be paying more
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in taxes on this money thirty years from
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now then I would if I took it out today
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and pay less because I'm in a lower tax
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bracket I'm less wealthy than I'll be
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thirty years from now
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does it make sense I mean this is the
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kind of crap that Wall Street and these
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big institutions spin on people I mean
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they take out television commercials to
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try to get us you know like drones
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buying and selling these products it's
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ridiculous we're planning for your
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retirement really if you are really
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planning for my retirement you would say
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hey Clayton take that money that's
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sitting there in your 401k right now
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take that little 10% penalty this year
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and buy seven rental properties with it
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that are now going to be producing each
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$700 a month in cash flow why I'm gonna
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wait till I'm 65 to use that money so I
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mean it's totally up to you and your
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plan may be different for instance my
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own 401 k plan I'm not allowed to touch
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it
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unless of a hardship or if I was to
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leave the company now in those
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situations you may not have any choice
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at all you know you can use it sometimes
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for a hardship like a funeral or you can
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actually use it to purchase your first
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primary house you can take that money
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out as it withdraw there's a list of
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things you can use it for but you
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probably are not gonna be able to take
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it fully out if you have the same plan
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that
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but many plans will let you fully take
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out your money full withdrawal and yes
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you'll take that penalty that tax
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penalty so consult with your accountant
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and ask your 401k provider what the
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penalty will be now here's the thing
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these providers in your accountant if
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they're not versed in real estate are
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gonna be scared okay they're gonna be
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scared that you're even talking this way
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because it's a comfortable comfortable
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vehicle for people the 401k right you
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start with a new company they tell you
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to sign up for the 401k plan and
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everyone feels happy no they're very
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comfortable in that and that in those
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clothing so just make sure when you're
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talking to your accountant you're very
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explicit about what we're talking about
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here which is hey John am I gonna pay
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more on this money years from now
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because I'll be in a higher tax bracket
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hmm well that's interesting Clayton I
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never thought of it that way well yes
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you will if you make more money in your
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wealthy when you retire you would pay
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more taxes then then now when you take
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it out oh okay
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so then why wouldn't I take it out now
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oh because it's your whole retirement
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hmm really so my whole retirement is
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tied to the stock market and 30 years
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from now no no what if I can take it now
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and buy rental real estate and get
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amazing returns on my investment you
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know like I said most of my properties I
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won't even touch a property unless I can
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get a 10 to 12 percent return on my
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investment year-over-year well if the
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penalty is only 10% in that that tax
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year I took that money out come on I'm
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still getting a 2 percent higher than
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the penalty return on it you follow me
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don't be duped by all this financial
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crap you see on TV these you know these
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these commercials that they try to woo
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you during the Super Bowl about how to
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plan for your retirement get smart about
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this stuff folks trust me this is how
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you build true wealth in this country
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having your money work for you to buy
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real estate now produce cashflow
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increase your net worth increase your
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equity and build that stability and
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financial freedom anyway I'd love to
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hear your comments about this one hope I
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didn't offend anyone and I hope I didn't
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offend any financial advisors watching
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this video I love you I do some of you
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just leave some descriptions and
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comments in the in the thread below and
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I'd love to jump in and read them please
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don't forget you can subscribe to my
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channel right over here a little
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subscribe button we've got tons of great
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playlists here on the channel to all
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about by buying and holding real estate
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until next time everyone I want you to
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go out there take action stop education
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just take action and become a real
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estate investor it's the only way we'll
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see you next time
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