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I️ am 38 and left my corporate job a little over a year ago…

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Hello. I️ am 38 and...
Hello. I️ am 38 and left my corporate job a little over a year ago to run my own business. I am trying to figure out what to do with my 401k. I am an active investor and am considering rolling I‎t I to a self-directed IRA, or, because the equities market is so high relatively, cashing I‎t out to pay off a private loan to my business which carries a 12% interest rate.I understand there is a 10% withdrawal penalty. If approximately half of my 401k balance is Roth and the other is pre-tax, what other early withdrawal implications are there? Meaning, what income taxes will I have to pay? And, if I expect my business to lose money in 2018 can that loss offset those income taxes?
Submitted: 6 months ago.Category: Tax
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1/3/2018
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 6 months ago
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,608
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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Hello,

You have a few moving parts so please let me know if you have any additional questions after my initial response.

Q: If approximately half of my 401k balance is Roth and the other is pre-tax, what other early withdrawal implications are there?

A: Both the Roth and the pre tax distribution will be subject to the 10% early withdraw penalty as you mentioned.

The Pre tax 401K amount will be added to your ordinary income, which will be offset by your business losses, if you choose to distribute the pre tax contributions.

Q: I am an active investor and am considering rolling I‎t I to a self-directed IRA, or, because the equities market is so high relatively, cashing I‎t out to pay off a private loan to my business which carries a 12% interest rate.

A: A few items to consider. The funds in your roth and pre tax IRA are growing with the benefit of being tax deferred and the compounding return over 20 years of tax deferred growth would drastically increase your retirement income.

__

Rolling your funds over to a self directed IRA would allow you to have more flexibility to manage your investments and a wider investment selection generally.

My opinion, would be to roll the funds over to the ROTH and traditional IRA and work towards paying off the private loan with income from your business. The interest paid on a business loan is tax deductible. If you need to you can liquidate what you need from the IRA's as needed. -- The general theory is "time in the market," produces overall better returns then trying to time the market.

Please let me know your thoughts or if you have any additional questions.

Thank you

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