Using 401K for property

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Using 401K for property

Realtor · Akron, OH · Member since 2017 · 8 posts · 3 votes

I would like to withdrawal some money (~10k) from my 401k to help my mother purchase a property; is anyone familiar with this process? If you withdrawal money from your 401k are there penalties and/or taxes to pay? I would appreciate any help!

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Basit SiddiqiBusiness Member

Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes

@Antonio Williams @Marlen Weber

You may want to reach out to the HR department of your employer.

Your retirement fund admin may allow loans against your vested 401K balance.
There are normally 2 loan provisions

General & Home purchase
Home purchase loan provision allows for a longer pay-back period.

Normally loans are not added to your income and not subject to taxes/penalties.
Your future paychecks are reduced to pay-back the loan balance.

There are also potential risks when taking a 401K loan, the balance being due upon being let go or quitting.

Alternatively, this year cause of the cares act, you may potentially be able to take out a distribution(no requirement to pay back) and it wouldn't be subject to penalties.

[email protected]917-280-8544

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Marlen Weber
Specialist · Plano, TX · Member since 2020 · 2k+ posts · 861 votes
6y
Great question, I was just look into this myself. From my understanding. You're subject to 20% withholding for taxes if you take any money out of your 401(k) and pay it to yourself. If you do it under the CARES act, you do not, but you need to qualify for it.
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Dmitriy Fomichenko
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
6y
@Antonio Williams
Early withdrawal from 401k would be subject to taxes and penalties. Check with your CPA about what the actual impact is going to be.
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
6y
@Antonio Williams @Marlen Weber

You may want to reach out to the HR department of your employer.

Your retirement fund admin may allow loans against your vested 401K balance.
There are normally 2 loan provisions

General & Home purchase
Home purchase loan provision allows for a longer pay-back period.

Normally loans are not added to your income and not subject to taxes/penalties.
Your future paychecks are reduced to pay-back the loan balance.

There are also potential risks when taking a 401K loan, the balance being due upon being let go or quitting.
Alternatively, this year cause of the cares act, you may potentially be able to take out a distribution(no requirement to pay back) and it wouldn't be subject to penalties.
[email protected]917-280-8544
Basit Siddiqi CPA4.880 Reviews
View Page
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George Blower
Retirement Accounts Attorney · Southfield, MI · Member since 2017 · 3k+ posts · 1k+ votes
6y
Keep in mind that in order to take a distribution under the CARES Act you must have been impacted by the virus in one of the enumerated ways.

If so, you can take a penalty-free distribution (as well as waive the 20% withholding requirement) from your 401k (assuming that the employer allows it) anytime between 1/1/2020 and 12/31/2020. You may avoid the taxes if you deposit the funds in an eligible retirement plan (which includes anIRA) within "3 years and a day" of the date of the COVID-19 distribution (note: compare to a 60-day rollover). Please note that the account into which the funds are deposited must be the same type of account from which the funds were first withdrawn (e.g. withdrawal of pre-tax funds from a 401k could be deposited in a pre-tax IRA but not a Roth IRA - "like to like").
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John Moran
Realtor · Port St Lucie, FL · Member since 2014 · 29 posts · 12 votes
6y
You may also be able to borrow money from your 401K. You will need to speak with the custodian to determine if you have enough in the account to accomplish this.
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Steve Morris
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
6y
Well, I'd look for a 1031 QI, if they don't do it, they know people that would know how to structure it.
Primary thing is that if you wish to finance your contribution, in almost all cases, any additional money into the property needs to come from the same 401K. i.e. You can't use the 401k for a down and then fix stuff up with non-401K money or put income from the property into any other account.
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Mark Futalan
Rental Property Investor · La Quinta, CA · Member since 2018 · 263 posts · 95 votes
6y
@Antonio Williams
Ever consider the option of borrowing from your 401k? Most 401k custodian companies allow up to 50% loan of the balance with very minimal fees.
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Marlen Weber
Specialist · Plano, TX · Member since 2020 · 2k+ posts · 861 votes
6y
@Basit Siddiqi awesome. Thanks for the great information.
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Anthony Dadlani
Investor · New York City, NY · Member since 2013 · 1k+ posts · 269 votes
6y
@Antonio Williams
Many other ways to fund real estate. Not a fan of using 401k funds. Those funds could be compounding tax deferred for many years.
Best of luck in all your endeavors.
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Paul Oscar
Member since 2020 · 9 posts · 54 votes
6y
@Antonio Williams , you can borrow from your 401k up to 50K. The payoff period is 5 years max and the interest payment goes back to your account .
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Account Closed
Investor · Morgan Hill, CA · Member since 2019 · 22 posts · 2 votes
6y
@Antonio Williams
You don't want to withdrawal from your 401k, but I personally think it's really smart to take out a 401k loan from your account. No penalties, doesn't count as DTI, and you pay the interest to yourself. It's my favorite money to borrow, but I do like to repay it since it decreases my w2 as it automatically repays from my checks.
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