Newman Asset Management Blog

More on the 401(K) Scam – Creating Your Own Lifelong Income Streams on the Del Walmsley Radio Show.  – good ideas in general, but the math is a bit misleading. There is a better way…

The attached blog link is from a real estate investor group we have worked with for a number of years, Lifestyles Unlimited, helping many of their members use their IRAs and 401(k)‘s in investments. The article is by their leader and founder, Del Walmsley. Del is an excellent real estate source, mentor, and example of what one can do in real estate with a good, workable plan.

That said, his ideas on the best way to use an IRA or 401(k) are off track in terms of the best financial sense. Cashing in an IRA or 401(k) instead of using a self-directed IRA or self-directed 401(k) – which would allow you to do the scenario he describes without tax or penalty – just does not make the best financial sense. In the scenario shown in his post, the $20,000 investment is after tax and penalty. To have $20,000 left to invest, you would have to withdraw $35,088 ( assuming a 33% tax bracket). That means you are paying out $15,000 to go invest $20,000. If you want to go do it again, you will again pay $15,000 in order to go invest $20,000…we are starting to get into a good deal of money just to make an investment. What if there was another way; a way that let you use more of your money?

Why not, instead, pay from a few hundred dollars to a few thousand dollars  - once -  to setup a self-directed IRA or 401(k) account (fees are depending on goals and needs), so that you can then invest ALL the remaining funds as Del describes in his post? That would truly be a great great source of retirement income.

Now, in Del’s defense, he is a real estate guy who makes money off of real estate seminars & classes, and helping people obtain real estate…and he is very good at it. Those seminars and that help will cost you money, but many have made a lot of money doing so (…i.e. you get what you pay for!) We here at Newman Asset Management make money by helping people setup self-directed retirement accounts and partnerships, and then using these accounts properly in good investments…again, you get what you pay for. So we both want the same goal for you…to make more money…we just don’t agree on every step.

All in all, we agree with Del that you can use your retirement funds in a better way than you are probably doing now. We just advocate you change the handling of those funds to be more under your control – with a self-directed IRA or self-directed 401(k) -  where you can guide the money based on your goals, versus throwing in the towel by liquidating your accounts and paying the taxes and penalties.

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Key Related Links

• Investor Group Makes Play For Skype
• Financing Real Estate Investments in Today’s Market – The Del Walmsley Radio Show
• Newman Asset Management Blog » Blog Archive » Cashing out an IRA or 401(k)…not the best financial sense!
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• Rich Dad’s Advisors: The Advanced Guide to Real Estate Investing: How to Identify the Hottest Markets and Secure the Best Deals | Real Estates Information
• Never Underestimate The Benefits Of A Real Estate Website Design | Internet Web Design

Tags: IRA, partnerships, Real Estate, retirement accounts, self directed IRA, self-directed 401(k)

This entry was posted on Friday, January 15th, 2010 at 1:01 pm and is filed under Retirement. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.