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CraigK
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# Posted: 12 Feb 2017 09:41 - Edited by: CraigK
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I have to keep working for a while until I can afford to retire and pursue my dream of going off grid, but was wondering....Have any of you funded your cabin build by paying cash from your IRA? If so, how did it work out? If it costs me say, $20,000 (rough estimate) for a complete build will the taxes kill me? When I do this I would like to pay cash from my IRA or 401k but I'm concerned about the taxes, but since I wouldn't be paying a mortgage maybe it may not be that bad? Any advice or experience you can share would be appreciated.
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bldginsp
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# Posted: 12 Feb 2017 10:55
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I'm wary of deferred comp and don't use it. I've seen people lose a lot in the stock market. The retirement system I am in, Calpers, invests in stocks but they know how to do it and can invest in a broad base. My goal is to be debt free when I retire and live in my cabin. So I'm putting my extra cash into tha cabin now so it will be paid for later.
Yes you will take a hit on taxes- not sure but I suppose it could knock you into a higher tax bracket for the year. Tough decision, but one way I look at it is that I could easily be dead in 12 months, so I need to balance preparing for the future against doing what is important to me now.
Another aspect- if you wait ten years to build the cabin, what will it cost to do so then? Is now the least expensive time to build, while materials are still stable in cost? Will that change? Do it while you can.
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toyota_mdt_tech
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# Posted: 12 Feb 2017 11:06 - Edited by: toyota_mdt_tech
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I would forget the IRA, just save cash, pay as you go. I used the cash deal and it wasn't too big of a hit. I ignore my retirement, forget its even there.
Get the plans, submit to county, get approval and just nibble at it, ie first step, foundation. Do it yourself, same more $$$. But when you start the build, get it to a dried in shell before the next pause so weather doesn't damage it. Then when time and money permits, just keep at it. I started mine in 08, final sign off was 2010 and I have been just doing finishing touches. It took me 4 years, but I would spend only a few weeks a year there. But when I did, I brought a crew of good pals who all volunteered and I fed them well. I had a 16 foot enclosed trailer with all tools loaded up in it. Use air nailers, everything goes so much quicker. Priority one, get a good framing nailer than can shoot 8D siding nails too. Then a palm nailer for hangers. The framing nailers works great for siding and then interior, a 16 gauge finish nailer. Those 3 nailers are the workhorse and you can get so much done so much faster.
Then just pay as you go. You can submit your plans to a lumber store and they will do a materials list and give you a price and deliver to the site. I did that, it included the windows, tyvek, rolled roofing felt, front door and all lumber including treated wood for porch. NO OSB! My original lumber pack was $3750 but I spent another $1000 in those 9 days it took me to get the dried in shell. I did upgrades too along the way, ie fully sheeted the attic floor with plywood (best thing I did right there) and it made for plenty of storage and easy to build a roof with a nice flat floor to walk on.
Good luck, I would avoid raiding the IRA, just tackle a phase at a time.
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PA_Bound
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# Posted: 12 Feb 2017 14:39 - Edited by: PA_Bound
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+1 for Toyota's comments. Don't touch your IRA/401K, build as you have the money.
Besides the taxes and penalties you incur withdrawing the funds early, you also lose the compounded returns. I know, I know.... there are those who say they have lost money in the stock market. And maybe, if they sold their investments all at once at a particular time (like when the market was down ~20%, and they freaked out), they probably did. But I'll bet had they rode the waves and crests they would be well into the black today.
I started a 401K when I was 19. Since then there have been some good market years and some bad. But now, 35+ years later, that account has measurably more in it than the actual funds invested. Thank you, compounded returns.
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Just
Member
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# Posted: 12 Feb 2017 14:57
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life can be short,
Time spent is non retrievable.
your decision!
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bobrok
Member
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# Posted: 12 Feb 2017 17:02
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Quoting: Just life can be short, Time spent is non retrievable. your decision!
+1+1+1+1
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Poppa Kohl
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# Posted: 13 Feb 2017 22:00
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If your employer’s plan permits this and most do, you can move part of your IRA into a self directed IRA to establish your own investment. By going this route, you do not pay a penalty nor pay taxes on the amount you withdraw. As an investment, you need a return – so you rent out your unit. With careful consideration, this investment should out do your present return. Lots more to this – but – I just wanted to pass the seed.
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NorthRick
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# Posted: 14 Feb 2017 14:12
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An investment funded by a self-directed IRA account has to be "arms length" from you. For example, you could buy a house and rent to strangers. If you stayed in it part of the time, or rented it to family, the IRS would likely call you on it and hit you with penalties.
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MtnDon
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# Posted: 14 Feb 2017 14:23
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Quoting: CraigK I have to keep working for a while until I can afford to retire
That statement makes it seem like taking money out would be counterproductive.
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CraigK
Member
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# Posted: 16 Feb 2017 06:44
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Thanks for the info.
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Mzmizery
Member
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# Posted: 2 Mar 2017 20:07
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some will allow you to borrow and pay back into it. if you pull out then you will have 10% tax and 10% early withdraw penalty. I had them take out the federal tax and paid penalty at tax time. offset with deductions
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pondjumpr
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# Posted: 20 Mar 2017 09:07
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Did the OP stated his age?
You would also need to know what type of investment vehicle he is in within his IRA. Is it a traditional IRA? ROTH? These are MAJOR factors.
ASSUMING.... your IRA is a traditional IRA, meaning you never paid taxes on that money (tax deferred) if you withdraw those funds, you will pay taxes on the funds you withdraw. Taking $2000 out of your IRA is no different than earning an extra $2000 in income at your regular job.
However, if you are not yet 59 1/2 years old, you may incur a penalty for that early withdrawal. That will likely be 10% of the withdrawal.
If the IRA is in a ROTH, you can pull any amount you invested out without penalty or without tax implications. If you are not yet 59 1/2 your gain will be restricted.
So, more info is needed before you can get advice. You should also consult your tax professional.
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toyota_mdt_tech
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# Posted: 20 Mar 2017 10:48
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Quoting: Just life can be short, Time spent is non retrievable. your decision!
This can work for either taking it out to buy the land or for leaving it in, ie the time to replace it is not retrievable. 
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benny8
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# Posted: 20 Mar 2017 12:00
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I took a 401k loan out to buy my property($16000) for 5 years. I pay back thru my payroll check. I had a loan thru my 401k prior that I had just finished paying and the new payment was $30 per week more, which my raise covered. I looked at the land as an investment, that coupled with sweat equity, would defray the loss on the compound interest. You only live once. I develop it as I get the funds. Good luck.
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