How to leverage 401k accounts

Question

For those of you that have good w2 income and want to take advantage of employer matching (100% return!), how do you tap into that money to scale your portfolios?  The way I'm looking at it, if my spouse and I only do employer matching for the 10 years we would have more than enough in there and still 10 years out from being able to access it.

I do plan on doing 401k loans for deals if the numbers check out, and I've considered rolling over some of our 401ks into roth IRAs to access our contributions but we'd have to pay taxes out of pocket (a big hit to cash flow) and we couldn't touch it for 5 years.  Both of our employers now offer roth 401k contributions instead (with matching going into regular 401ks), and I may take advantage of that too, but another small hit to cash flow.

At some point, do you just suck it up and take a 10% penalty?

Dennis Bragg · Answer

Hey @Stephanie Medina

You’re in such an exciting spot right now! With $135K in equity and options like flipping or investing out of state, you’ve got the foundation to make some big moves.

A close friend of mine had a similar situation recently. They had equity in a rental and wanted to try their hand at flipping. They partnered with an experienced realtor who handled most of the contractor coordination while they focused on financing and design decisions.. The result? A tidy profit, plus confidence to tackle the next project solo.

On the topic of self-directed IRAs: While they’re fantastic for gaining experience and diversifying into real estate over time, they can feel restrictive if your main goal is scaling quickly.

Here’s what I’d focus on:Using Equity Wisely: A HELOC or cash-out refinance could unlock funds to pursue a flip or duplex without touching your 401(k).

Partnering Smartly: Your realtor friend sounds like a great resource. Flipping with someone experienced can be invaluable, especially when you’re new to navigating contractors and timelines.

Researching Out-of-State Markets: For a duplex, consider markets like Phoenix or San Antonio - investor-friendly with strong rental demand. In Phoenix, I rely on Pat Aboukhalen whereas in San Antonio, Dominque Leal has been a great resource.

What’s your gut leaning toward? The flip could build your confidence fast, but the duplex might offer long-term stability.

Dennis Bragg · Answer

Hey @Stephanie Medina

Your question brought me back to a deal a client of mine did in Chicago a few years ago. He took a 401(k) loan to fund the down payment on a four-unit building in a rapidly appreciating neighborhood. The key for him? Treating loan repayments like a non-negotiable expense while reinvesting property cash flow back into building equity. Today, that building generates enough passive income to cover his annual retirement contributions.

You mentioned taking the 10% penalty, which I’d only recommend as a last resort. Instead:

401(k) loans: They’re low-interest, and you’re paying yourself back.

Roth rollovers If you can afford the taxes now, this gives future flexibility.

Creative financing: I’ve seen clients leverage partnerships or seller financing to limit retirement fund withdrawals.

One thing to consider: real estate markets today are vastly different from a decade ago.. so opportunities may require extra creativity.

Have you looked into specific deals yet? Curious what’s catching your eye.

Stephanie Medina · Answer

I have not seen specific deals yet, I'm still a rookie.  I'm still scoping out all the vastly different opportunities.  I have one LTR, single family home with about 135k equity in it.  I think my next moves may be an out of state duplex and/or a local flip with a realtor friend of mine who has some experience doing it.