Thinking of using 401k to invest

7 Replies

Hi All

Im thinking of using funds from my 401k plan to launch my investment goals. Ive heard of the Self-Directed IRA and not sure I want to go that route. Has anyone used the SDIRA? If so, what's been your experience? I've also thought about just taking a loan on 401k for the down payment and repairs (using BRRR method) then refinancing within 6 months to repay my 401k. Has anyone taken those steps? If so, how did that work out for you?

Thanks Toni

@Toni Dixon if you are still in a w2 job, you won't be able to pull out 401k or have a solok.  SDIRAs can be great, but can also get yourself in a bind if you get too close to the edge of account balance due to limits for yearly additions.  If holding a note, if borrower stops paying, foreclosure can be expensive depending on the state, so you'd very healthy reserve funds.

Thank you Dimitry and Adam for your quick response.  I'll check out the link with previous replies to this same question.

Adam, I would likely take a loan against the 401k or do a withdrawal. The latter of course is less likely as early withdrawals fees will apply.


Thanks again 


Toni

I think it's another "tool" in the funding toolbox. The more tools you have, the more you are able to take advantage of opportunities that come your way.

@Toni Dixon I've done the 401k loan thing a number of times, paying it back after, as long as it's shorter term (my preference).  The main risk is that if you lose you job, the loan is all due.  If you can't pay it, it's then a "withdraw" and added to your income, which off course will typically mean higher taxes too.

Thanks All! Really appreciate the responses. I've recently heard of another way to use 401k that may be a better option. Its called ROBS - Rollover Business Strategy.  I'm going to be seeking the advise of a local tax advisor soon to really understand how it works.  I came across this information after searching YouTube for how to use your 401k to invest in real estate.  I found a video by Karla Dennis - "How to Level your 401k for Real Estate Investment" that gave a lot of insight on how ROBS works and how to set it up.  As with anything there are some drawbacks however by comparison to SDIRA it seems to fit what I need.   If anyone has used the ROBS method with their 401k, I'd love to hear about your experience!

I haven't done either, but from the homework I've done, a loan on the 401K is the easiest route. And the fact that your interest goes back into the 401K is pretty awesome.