Can I take a 401k loan and transfer it to my LLC to purchase a property?

Question

Hi all,I am able to take out a loan against my 401k for up to $50,000 dollars and have to pay it back within 5 years. As far as I understand, this can be used for anything, including an investment property. Can anyone confirm this? My 2nd question is, if the above is true and I withdraw X amount of money, am I able to then transfer that to my LLC and use that to purchase the property through my LLC? This would be the ideal scenario to get that extra layer of protection. I cannot seem to find any definite answers on this. Anything helps, thank you!

Anthony Greco · Answer

Thanks everyone for the replies. That is very helpful. For further context, I will be using a hard money lender who funds 80% of purchase price and 80% of rehab costs, so ideally if everything goes according to plan I will do the BRRRR method and be able to refinance in 3-6 months. I will pay off the hard money lender and use the rest of the equity to pay back my 401k loan so I shouldn’t lose too much of growth from it.

Dmitriy Fomichenko · Answer

@Anthony Greco,

If your 401(k) plan allows participant loans, you can use the loan proceeds for any purpose; there are no restrictions. You could use proceeds to buy a boat (that would be foolish but permissible), or you could use proceeds to buy an investment property directly in your name or the name of the LLC, or (if you feel generous) you could gift $50,000 to me. Regardless of how you use the loan proceeds, YOU must pay the loan back.

Of course, I'm being sarcastic here, but I'm trying to make the point that there are no restrictions on how loan proceeds can be used.

Dmitriy Fomichenko · Answer

@Anthony Greco, sounds like a good plan!

Aaron Zimmerman · Answer

Question #1: correct

question 2; I don't see why you couldn't do that. I'd look to work with a cpa to make sure it's scheduled the right way

Tom S. · Answer

@Anthony Greco  In general, loans from a 401k can be used for real estate (or most other purchases / expenses).  I've used them before for RE on a very short term basis.

Keep in mind, if you lose your job or want to change jobs in the next 5 years, the outstanding loan amount becomes due.  If you can't pay, then it becomes taxable income.

Patrick Roberts · Answer

Can you use a loan from a 401k? From the lender's perspective - Yes. There will be additional documentation for this, but these funds can be used either for DSCR loans or for traditional loans. For traditional loans, this will not impact your DTI.

Should you? That's a different question. There are a lot considerations, including those of what your custodian will allow, tax implications, cash flow impact, opportunity cost, etc.

Unless you're looking at a screaming good deal, keep the assets in the 401k where they can double as emergency reserves and just save up the downpayment. There are also SDIRA's that could allow you to use the retirement assets in other ways without the risk of a distribution.

Bill B. · Answer

I don’t know your 401k to LLC question, maybe/probably?

But why not skip the LLC? You’re not really getting any extra protection. Try to imagine a lawsuit that exceeds your insurance coverage. (The only time the LLC would matter.) Where you wouldn’t also be sued personally. You are 10X more likely to be sued for something you do personally. (Dog bite, car accident, pool, injured worker, etc etc.) in which case you’d lose the property anyway as it’s in an LLC you own. It’s your asset.

The call has gone out dozens of times to all the BP members for one example where an LLC saved them that an umbrella policy wouldn’t have. There have been zero examples. And that’s all assuming your the first person in history to perfectly separate their personal and corporate life to prevent piercing of the corporate veil when a lawsuit involving more losses than insurance coverages.

Raise your standard limits and if you’re worth more than $500k-$1m just raise the limits on the umbrella policy you obviously already have. If not, you’re “judgement proof” by lack of assets. Good luck and done let this prevent you from moving forward.

Sasha Mohammed · Answer

on the first Q - call up your 401k custodian and ask for "terms of withdrawal" - this should outline all the do's and dont's. disclaimer if you do end up a with a consumer loan on your purchase, lender will include the repayment of this 401k LOAN on your DTI.

on the 2nd Q - theoretically yes, but im not sure in what context or perspective you're asking the question. will a lender allow for it? likely, depending on the lender and loan type. even more likely if it seasons for 2 months first. If you're asking about the tax implications, you'd have to ask a CPA.

Can I take a 401k loan and transfer it to my LLC to purchase a property?

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