What to do with your 401K?

2/9/09
I just read an article that completely shed light on why more people aren’t using their IRA/401K money to invest in Real Estate. The article was from MSN Money and was titled “Lost Your Job? 5 Things to do with your 401K.” The author goes on to suggest five options for your 401K money. Not one of them is to roll it into a self-directed IRA and invest in Real Estate. This just shows how afraid people are of the Real Estate market today. It blows my mind. A favorite quote of mine, I believe it is Warren Buffet, is “when people are afraid, millionaires are made.” This is so true today. There is such an amazing opportunity out there and the few that take advantage now are going to be filthy rich. I know that for a fact. I plan on being a part of it. Christa and I already rolled our IRA’s, 401K and Roth to Equity Trust and have three separate self-directed accounts. We have several properties under contract and have partnered with another seasoned investor to take advantage of all the phenomenal deals out there. The 5 options the author suggested were not mind boggling. He suggested first to cash it out and take the 10% penalty the IRS will hit you with when you do. His thought was that you might need the money now to pay for your mortgage or utilities. That could be true, but it wouldn’t be the most prudent move you could make. Another option was to do nothing. Once again, probably not the most prudent move. You have limited investment options, and a lot of times when you are no longer employed the company will require you move the money out. Third option was to roll it over to a ROTH, take the tax hit now and keep it in Mutual Funds. Not a bad option, probably the best one he gives. Problem with it is that so much has been lost over the past year in most people’s accounts that it would really take years of double digit returns to just gain back what was lost. It could take 10 years just to get even. That’s the reality of where the market is and what to expect it to do in the future. His other option was to roll it over to a traditional IRA, once again depending on your age maybe not a bad idea, but expect a long wait for it to regain all its losses. The final suggestion was to roll it into the new employers 401K, assuming you find a new job, that would be an option just like putting it in a Roth or Traditional.
My suggestion is to roll it to a traditional self-directed IRA and invest in Real Estate. In today’s market Real Estate offers the best bang for your buck. Using your IRA allows you to invest in this amazing market without capital gains. Talk to your CPA about all the tax advantages. We plan on taking some of the gains we make in Real Estate and then reinvesting in the stock market. If you do that, you can take advantage of the great real estate deals and also get back into the market when it is low. I always suggest to diversify, just do it the right way. All the money that is in the market now has already taken a huge hit, its time to get it out now and find ways to recoup it. Once you start seeing results from your Real Estate deals, then slowly and methodically (dollar-cost averaging) get back into the stock market.
Let’s invest wisely and make some real money! Do not rely on the crooks on Wall Street or the government. The government wants you to believe it is the end of the world so they can spend more of your money for you. Wall Street cries for bailout money then they pay themselves Billions of dollars in bonuses for being failures, all with your hard earned money. I’d like to have that job. Can you believe the moxey of these people. They lose a ton of money, and then reward themselves with bonuses. I thought a bonus was for a job well done. The only job well done they have accomplished was convincing the government to bail them out. It’s unbelievable. I’ll stick with Real Estate. You buy a home severely undervalue . It is tangible, you can touch it. You can rent it out and have positive cash flow (remember you paid cash for it with your self-directed IRA, there is no mortgage). Since you bought it undervalue you have an equity stake in it, plus when the retail Real Estate market rebounds you should have significant appreciation. To me it’s a no-brainer. I hope the light clicks on for you too.