I have this Idea of taking a 20% withdraw for a down payment out of my 401k to avoid PMI costs and down the road to grow my properties to gain financial independence. I understand all of the consequences like 20% fed tax/10%penalty and a 3.07% state tax for PA. I would be only looking to pull enough out for only a 20% down payment, Im 32 years old and have 120k+ in my 401k with a 7.5% inception gain. Now my plan is to do the BRRRR strategy, I can pay the 10% penalty back in a few years 2 ways, upping my contribution which was already the plan or I can pay it back with the cash flow out of the rental property. The contribution change would be the most ideal with changing withholding's in my check which I can afford. Im really hesitant on this decision because of the amount I would have to withdraw just to get my 20%. I have 60k withdraw room to work with before I would get pushed into the next tax bracket.
I know 99.9 percent of people would say DO NOT TOUCH YOUR 401k, but im thinking different. No Matter what I will be paying those taxes in later years after I withdraw them for retirement... and the Goal is always to make more money right? well ill probably have to pay more taxes in 30 years then I do now. I am projecting(based on my wife's job and my increases) we will be one tax bracket higher then we are now at retirement(24%) and those will change with ever election. So would it make sense?
This is really the only option we have at the moment, we have a large HELOC out that we used to consolidate student loans and we do not have extra cash for a 20% down payment. We are patient and not rushing into anything.
Any insight would be highly appreciated and I am not trying to talk myself into this, I just think it makes sense. I will still work my full time job contributing to my 401k for the next 30 years times 2(wife) to save for retirement.
Has anyone else ever did this, or ran actual numbers on a done deal. I know real estate renting can make 10%+ return and that is much better than my 7%. My only take back is the cash flow might not be always saved, hence BRRRR, I would like to grow from 2 to 4 to 8 to 12+ units. I would have actual money on hand to wait patiently to make a move on a good deal.
I appreciate all help and opinions, please tell me how it is. Ive been debating this for the last few months and watching how the market and housing market with interest rates have been moving, Waiting for a market pullback to make a move. In the mean time ill be sitting here doing my diligence and reading all the great posts and educating myself in every aspect.
Thank you for your time.