Trying to get my first deal

[Trevor Hatchard]

Hi all,

Looking to get a quadplex in the pricey southern california market. Have been looking into creative ways to fund my first deal. Does anyone have any experience borrowing against their 401(k)? My company does a 50% match which i figured i would be able to take advantage of here?

My original idea was to use a FHA loan, but i want to use the BRRRR method on a property and noticed that government has FHA 203(k) loan that would be the option i want to use. My girlfriend also is teacher so was considering using the CAL HFA loan which has really good rates.

Ideally i was hoping to put 40K down, keeping about 20K in personal reserves.

Any tips, strategies or lessons learned with any of the above mentioned items would be greatly appreciated.

[George Blower]

@Trevor Hatchard

@Kell Caro

@James Rodgers

Here are the general considerations regarding both 401k loans & Roth 401k accounts.

401k Pariticipant Loans

• If your 401k plan allows for 401k participant loans, the maximum loan amount is equal to 50% of the balance up to $50k.  The repayment terms for a 401k participant loan are equal monthly/quarterly payments of principal and interest (typically prime plus 1%) over a 5 year term (longer if used to acquire your principal residence).
• Please note that if you take a full $50,000 and then pay back the loan, you can't take another $50,000 until 12 months after the first loan was fully paid back.  
• Per the loan offset rules that went into effect with the 2018 Tax and Job Act: if you leave your job and the loan is current at the time you leave your job but then the loan goes into default because you left your job, you will have until your tax return deadline (including any timely filed extension) to make the loan current by depositing the outstanding balance into an IRA (and thereby avoid the taxes and penalties that would otherwise apply).

Roth 401k

• Unlike a Roth IRA, withdrawals from a Roth 401k account must take a pro-rata share of basis and gain (i.e. you can't just take out the basis) and any non-qualifed Roth 401k distribution will subject the gain to taxes and possibly penalties.
• While matching contributions are certainly pre-tax, if the plan allows for in-plan Roth conversions such amounts could be converted to a Roth sub-account which would be both taxable and reportable on a 1099-R.