Like a start-up, you need access to capital in the early years of your career. Having access to cash is the lifeblood of a business and it should be the same for you in your family’s financial plan.
As a real estate professional, it is vital that you have accessibility to your earned dollars (without penalty) as easily as possible. The job and environmental market in your career can be unstable. College is expensive. Budgeting can be tough, Life happens.
Unfortunately, for many, dollars that could be used to pay off past credit card bills, pay annual taxes, children’s daycare or daily living in between closings are locked away in qualified plans like a 401k or IRA. Do you really want a 10% penalty or high interest rates when seeking capital in a dire situation?
Imagine it: a world where your dollars continue to grow each and every time you spend them. Seems nice enough. If only there were such a place. As real estate professionals, at its core, you want your money to do 2 things for you:
Grow. Every. Day.
Allow your family to live a comfortable present day lifestyle
Do you find yourself making a compromise in either of these areas when it comes to your money? Let’s go over the two as they sit in one of the most common investment vehicles of this generation, the qualified plan, to find out.
Do the dollars inside your 401k/IRA/SEP grow every day?
Qualified plans are the second largest pool of dollars in America, making up over $18 Trillion dollars. Most professionals, if presented with the opportunity, invest into a qualified plan. We are told that these plans are “savings” plans.
401ks, SEP’s and IRAs are market backed, meaning there really is no guarantee of anything. Therefore, they do not grow every single day.
Do the dollars locked inside your 401k/IRA/SEP allow your family to live a comfortable present day lifestyle?
Of course not! Could you access these “savings” dollars? Of course you can. As long as you are willing to:
Pay back the loan in its entirety within 5 years
Repay the loan within 2 months if terminated or leave the employer
Receive a tax bill and penalty (if under 59.5 years old)
Even if you do utilize the dollars that are locked inside your qualified plans, are they really benefiting you and your family today? With the strict guidelines above, most would answer no.