Should I pull out 401k to purchase second home?

Question

I’m 30 years old and I currently own a home in Southern California. I have been thinking about pulling money out of mine and my wife’s 401k to purchase a another home around $350,000. I plan on having my parents move into the second property and pay the mortgage. I wouldn’t have to worry about any monthly costs since they will take on all payments and costs. Does it make sense to pull out my 401k in order to gain an additional property? Any pros or cons?

Reggie Rearden · Answer

Check to see if your employer offers a 401K loan. Pull the money for the down payment and pay yourself back. Mine lets me pay myself back weekly. I don't take any tax hits this way.

George Blower · Answer

If the money is in your current employer plan and you saved the money from working for your current employer, you generally can't take the funds out of your 401k until you quit your job.

Andrew Pacheco · Answer

Appreciate the advice. It would probably take me a few years to save for a down payment on another home, and I would think my income would need to increase greatly to get another loan approved. My thought process on taking out the 401k would be to put the money down and have my parents get approved for the loan, possibly me as a co-signer, with the understanding that the property would be mine. With the plans of either selling it down the road if value increased greatly (using that money for another investment) or renting it out 10-15-20 years down the road. I see a way of making money through properties and want to figure out a way to leverage some money to either set my self up in the future or near future if possible.

Taylor L. · Answer

I wouldn't do it. Mixing money and family is a recipe for disaster, particularly when that money is supposed to be for your retirement. The 401(k) offers a big tax incentive for working professionals, can you save enough for a down payment after contributing to your 401(k)?