Using retirement or savings money for real estate: the real numbers

Option 1: Cashing out a 401(k) or IRA (usually the costliest)

If you're under 59½ and simply withdraw money, you generally owe income tax on it plus a 10% early withdrawal penalty, with some exceptions.

Worked example: a 45-year-old in the 22% federal bracket cashes out $50,000. Penalty: $5,000. Federal tax: $11,000. Mississippi income tax, about 4%: $2,000. They keep about $32,000. To earn back the $18,000 lost, a deal would need to return more than 50% on the $32,000 before they're even.

Option 2: A self-directed IRA (keeps the tax advantages)

A self-directed IRA is held by a custodian that allows alternative assets like private real estate loans, property or LLC interests. You move money from an old 401(k) or IRA by direct rollover or trustee-to-trustee transfer, with no tax or penalty when done correctly.

Worked example: the same $50,000, rolled into a self-directed IRA, funds a private loan at 10% for a year. The IRA receives $5,000 in interest, and all $55,000 stays in the IRA growing tax-deferred, or tax-free in a Roth. The difference from Option 1 is $23,000 on day 365.

• The IRA, not you, owns the investment. Payments go to and from the IRA only.
• You can't lend to or buy from yourself, your spouse, parents, children or their spouses, or use the property personally. These are prohibited transactions and can disqualify the whole IRA.
• Using a loan inside an IRA to buy property can trigger tax (UDFI/UBIT) on part of the income.
• Custodians charge setup and annual fees. Compare them.

Option 3: A 401(k) loan

Many employer plans let you borrow the lesser of $50,000 or half your vested balance and repay it through payroll, usually within five years. There's no tax or penalty if you repay on time. If you leave your job, the balance may come due quickly or be treated as a withdrawal. Not every plan allows it; check with your plan administrator.

Option 4: A solo 401(k)

Self-employed people with no full-time employees besides a spouse can open a solo 401(k), which some providers allow to invest in real estate. Contribution limits are higher than IRAs, and some plans allow loans to the participant. The same prohibited-transaction rules apply.

Option 5: Savings, CDs or a brokerage account

Money outside retirement accounts has no penalties, but you'll pay tax on any gains when you sell investments, and you give up whatever that money was earning.

Worked example: $50,000 in a savings account earning 4% makes about $2,000 a year with no risk to principal and full access. The same $50,000 in a 10% private loan would earn about $5,000, but it's locked up until payoff and carries the risk the borrower doesn't pay. The extra $3,000 is payment for that risk and lost access. Keep your emergency fund out of any deal.

Side-by-side: $50,000, one year, illustrated

Using the examples above:

• Cash out a 401(k) at 45, then lend at 10%: about $32,000 invested, about $3,200 earned, roughly $35,200 after one year, taxable.
• Self-directed IRA, lend at 10%: $50,000 invested, $5,000 earned, $55,000 in the IRA, tax-deferred.
• Keep it in savings at 4%: $52,000, taxable interest, no deal risk.
• Private loan from savings at 10%: $55,000 before tax, with deal risk.

A simple checklist before you move retirement money

• Confirm your age, plan rules and any penalty exceptions with your plan or a CPA.
• Use a direct rollover so nothing is withheld; indirect rollovers withhold 20% and must be completed in 60 days.
• Pick a self-directed custodian and read its fee schedule.
• Invest only money you won't need for years, and never your emergency fund.
• Get every deal in writing and recorded, with the IRA named as lender or owner.

Who Travis DeLoach is

Travis DeLoach runs The DeLoach Approach with Luxury Southern Realty in Hattiesburg, Mississippi. He sits on both sides of the table: a licensed real estate agent (MS License # S62442) and an active investor who buys property himself and works with a network of local investors, lenders and contractors.

• MLS access: he sees new listings, price drops and sold data the moment they hit, not days later on public sites.
• Off-market reach: sellers facing foreclosure, probate, liens, tired landlords and cash sales reach out to him directly through his seller guides and Sell Fast for Cash page.
• Pricing by hand: every value he gives is built from nearby sold homes he has checked himself, and he shows you the comps.
• Local coverage: Hattiesburg, Petal, Oak Grove, Sumrall, Purvis, Laurel and the Pine Belt, plus Jackson metro and the Mississippi Gulf Coast.
• A licensed duty: written agreements, clear disclosures and a legal duty to deal honestly. When he or his partners buy directly, they do so as principals and disclose his license.
• Reachable: call or text 601-287-9785, any day.

Read this before you invest

Every number in this guide is an illustration to show how the math works. It is not a projection, a typical result or an offer. Real deals can lose money.

This is general education, not investment, tax or legal advice, and not an offer to sell or a request to buy any security. Any specific investment is discussed one on one, with written terms, and only after you've had the chance to review it with your own attorney, CPA or financial advisor.