401k Loan as downpayment

[Vladimir Patic]

I have read somewhere that if money from 401k is used to purchase an investment property that income from that property would be tax free.  Is this accurate or not?

[Greg Scott]

Totally Incorrect.

If you take money out of a 401k, you are taxed for taking the money out.  Whatever profits you make on the property will be taxed according to the tax laws and your personal situation.

If you rollover you 401k monies to a self-directed IRA, you can defer taxes on the gains of the property until you take the money out, at which time it is taxed at ordinary income. You may also be subject to UBIT taxes if you have purchased with any debt.