Investing with 401k Monies

[Dave Birck]

I'm looking to find someone who is using their 401k fund to invest in real estate. I've read about having to keep the money at arms length (3rd party) and not being able to actively manage properties. Particularly interested in learning from someone in California investing out of state. Anyone have experience in this and understand the tax penalty/consequences and is there a way around them? 

[Dmitriy Fomichenko]

@Lane Kawaoka, in your example of the 401k with $100K: how is it better to take early distribution, pay 40-50% in taxes/penalties and end up with only half of the amount, rather than investing entire $100K in tax-deferred environment? 

Perhaps for some investors, in some instances, that might be a viable option. However I don't think it is prudent just to make general recommendation that someone is better off taking early distribution without knowing all of the facts about that individual's financial situation.