401k vs income property?

Question

Should I take money out of my 401k plan to invest in income property. I would need the money to meet the down payment requirements.

Answer 1

Most 401's have a provision to borrow from them for real estate use. Might be an alternative if its not restricted by rules and that way you would avoid the tax problems.
You might also negate the tax penalty with total depreciation and interest expense on the new property. Talk to a CPA about the depreciation schedule.

Answer 2

That isn't as simple a question as it might first seem.

Because ou have chosen to not include some important details , such as your ; Age; Income; total in your 401k account; amount that you wish to take out; and some details about the income property - it makes it hard to give you a simple answer.

Also, some people don't make good landlords, and depending on the area you are in, it may not be ideal to buy income property.

So it is very hard to give you a correct answer - it is simply unknown whether you have the qualities to make this income property idea work in your favor over time. But, if you are confident in the individuals areas, then YES, you should IF all then numbers work out.

Hope this helps.

Answer 3

Does your 401(k) have a loan provision? You may find that this is the best option, if you can afford the monthly payments. That way you avoid paying taxes and penalties on the amount you take out, and best of all you are paying yourself back; even the interest goes into your own retirement.

I know that with my 401(k) I can take out up to half my current value, with payments coming out of my paycheck automatically. (However, you DO have to repay your loan with after-tax dollars, so while it's a good way to build your retirement, it doesn't help with the tax break.

The real advantage of course is that if you borrow from your 401(k) as the down payment for income property, you are leveraging your loan five or ten times (assuming 10% or 20% down), so whether you're thinking of income from appreciation on the property or rental income from tenants, you've got a potentially great return from money that you're paying back to yourself. If you can manage the cash flow, it's a great choice.

(I've been thinking about this myself, but I have one kid just starting college and another starting in a couple years, so my 401k loans are all going to various institutions of higher learning. And yes, I'm starting a Coverdell for my 9-year-old so that he'll have his own funds when HE needs it...)

Answer 4

Many 401(K) plans have loan provisions for first time home purchases not rental property. Mostly likely your withdrawal would be taxed. Other question that should be answered, is the cash flow from the rental property sufficient to cover your mortgage? How long do you intend to own the property?

Answer 5

I would take it out and roll it over to an EFT, unless you are in good market for investment, but being a landlord can suck sometimes lots of headaches with bad tenets

Answer 6

unless you do can get this transaction to be a 1031 like kind exchange transaction it would be worth it and tax deffered. if you cant, then you would have to pay taxes on your 401k income.

Answer 7

NO NO NO!