Why You Should Liquidate Your IRA

Sep 01, 2020

I Liquidated My IRA--and Why You Should Too!

I established my Roth TSP as soon as I could after I joined the Army (for those non-federal employees, a TSP is a retirement account, the equivalent to a 401(k) or other IRA). I educated myself and immediately moved my allocations from the G Fund (extremely conservative) to the C and S Fund (aggressive). When the Department of Defense unrolled the Blended Retirement program in 2019, I enrolled immediately and have maxed out the matching program ever since. I was proud to see my retirement account increase--knowing that I was putting money aside now to support my family when I'm retired. I was very content with the wise advice, "set it and forget it."


BUT NOW- I am going against the grain--I LIQUIDATED ALL OF IT! 

The Coronavirus Aid, Relief, and Economic Security Act (CARES) Act allows anyone negatively affected by the Coronavirus (see requirements here) to withdraw up to $100,000 from his or her retirement account penalty-free. They will then pay the taxes on any taxable income throughout the next three calendar years. I took full advantage of this program. 

 Reasons I Liquidated my IRA

I broke down my reasons for withdrawing my balance into two categories--market-driven and personal goals-driven. They are as follows:


  1. I do not trust stocks at this time. I do not want to be speculative, but the stock market is completely divorced from the economy. The DOW closed at 27,930.33 on August 21st. That is less than 6% off of the ALL-TIME HIGH of 29,551.42. Also, GDP decreased by 32.9% in Q2 of 2020, and unemployment has been more than double-digits for the past five months. The economic effects of this have not hit home yet because of government stimulus. A correction has to happen, and I (and many others) believe it will be significant. 
  2. Bond returns are barely above inflation. No up-side, low returns. Thanks, but no thanks. 
  3. Cash is king--especially in a downturn. Banks become very risk-averse when the economy slows. Lending freezes up in recessions/depressions. Having some working capital to invest gives any real estate investor a competitive advantage. 
  4. Big opportunities are coming in real estate. There could be opportunities to pick up cash-flowing properties at a large discount soon, but only for teams that have the capital to invest.
  5. This withdrawal is an extremely low-risk venture. If I am wrong, or I want to capitalize on the tax benefits of my Roth IRA once again, I can fully replace all of my withdrawal anytime before January 1, 2024. The only risk I've accepted by withdrawing my TSP would come in the circumstance that the stock market continues to go up, I would lose out on any gain I would have received (opportunity cost). 

Personal Reasons:

  1. I have better uses for the capital. The TSP, like almost every IRA or 401(k), only allows you to invest in stocks, bonds, and mutual funds. I can achieve much higher risk-adjusted returns using the money in my TSP to purchase real estate. 
  2. Start-up costs are high. A real estate business alone has a high-barrier to entry. Although we deal with minimal overhead, paying professionals to help set it up can cost thousands of dollars. When combined with coaching, affiliations, marketing, risk capital during due diligence, etc., up-front costs are essential and can be high. 
  3. Offset the taxable income. The taxable income I will pay for the withdrawal is offset by our business and real estate investments (this could be the case for you, too!). That means the CARES act eliminated my early withdrawal penalty, and real estate eliminates the taxes. Win-Win.

*Important Note* Even though I withdrew all of my TSP, I am still putting a portion of my income into my TSP. That is because the Army matches up to 5%, and not investing that 5% means I would be leaving money on the table.



This strategy could benefit anyone, but it is not for everyone (not even the majority of people). The biggest reason I would tell someone not to withdraw their funds from their retirement account is if they did not have access to a safe, recession-resistant investment vehicle. That problem is solvable through education and leveraging partnerships. If you're feeling stuck, reach out and let's talk. 


I know there is a better way to secure my financial future and support my family and many other families. For me, the decision aligned with my goals and my values. I urge anyone that is considering this tactic to research, reflect, and then take a leap of faith. 


Happy investing!

Bo Goebel is an US Army Infantry Officer and member of the ADPI Multifamily Mastermind. He is a Managing Member of Riverside Investment Group, a values-based investment team that specializes in commercial multifamily. Learn more on his LinkedIn profile or contact him at [email protected]riversideinvestmentgroup.com.

You can view Bo's original linkedIn article here



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