New Venture Lab: Equipping Christian Entrepreneurs

Question

What are your thoughts on the pros and cons of cashing in an IRA early?  In addition to our IRA’s, I also have a larger 401(k).

 

According to my CPA, a premature distribution is subject to ordinary income tax and a 10% penalty.  The penalty can be waived for first time home purchase, some medical expenses (if the amount is > 7.5% of the gross income), and some qualified education expenses (college & some vocational schools).

 

My concern is:

• The acceleration of inflation in the near-term due to the Fed’s actions
• The likelihood of increased taxation in the future
• A desire to pass on something of worth to my children and grandchildren despite a contra dollar environment

           

The assets would be used to:

• Pay off all debt
• Invest in hard assets, books, tools and training for myself and my family. Most, if not all of these expenditures, would not qualify as an exemption to the 10% penalty.

Answer

One thing you can do is roll your 401(k) assets into a corporate shell that you set up.  You can then use that funding to acquire other assets, start a business, buy a business, etc.  This way there is no penalty for early withdrawal, but it gives you more options for how to use the cash.  Click here to read a previous post on how this works.

 

In terms of what assets to invest in -- given your concerns -- I like the idea of buying income-producing assets that will provide passive income while appreciating in value such as apartment houses, commercial offices, etc.  The simplest way to do this is to invest in REITs, while the more complicated way is to buy the assets directly and personally.  Other suggestions would include buying into producing oil and gas wells so that you have passive income as well as a good inflation hedge against rising oil and gas prices.  You could also consider timber and water rights/production.  A good diversified strategy would include all such types of assets.  You could also acquire any number of businesses with sustainable income and recurring revenue to employ your family in and/or provide income and independence.