Should I Use My 401k for Real Estate Investing

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Should I Use My 401k for Real Estate Investing

Should I Use My 401k for Real Estate Investing

Even during the housing crisis, financial experts agreed that real estate was still an excellent long-term investment. As the market is improving, that tenet still holds true. In fact, many people are transferring funds out of other investments and into real estate since interest rates and stock market returns have been so low. Pulling cash out of a 401(k) is a popular move these days. But is it right for you?

Withdrawing Funds

A 401(k) plan is a means for you to take funds out of your paycheck, pre-tax, and put them into a specialized savings account with certain rules and restrictions.* If you do decide to withdraw monies from your 410(k) in order to take advantage of the current housing market and invest in real estate, there are a few things you should be aware of:

  • 10% early-withdrawal penalty -- this is on the full amount you withdraw and applies to most people who withdraw funds before they turn 59 1/2.
  • Income tax payment -- you will immediately incur a tax liability on the amount you withdraw.

That said, there may be benefits to pulling money out of your retirement fund and using them to purchase an investment property. For one, you may be able to withdraw enough funds to contribute a down payment amount that would enable you to avoid paying private mortgage insurance, or PMI, on your new mortgage. We can take a look at your finances and valuate available programs to determine if this is a good choice for you.

Taking a Loan


Another option is to take a loan against your 401(k) funds. In general you can borrow up to half of the amount you have saved, up to $50,000. When you take a loan against your fund, you are able to use pre-tax dollars for your purchase, avoid early withdrawal penalties, and generally take up to five years to repay the loan. But remember:
The money you withdraw will no longer be earning toward your retirement.
If you leave your job, you will most likely have to repay the loan within 60 days.


Investing in Real Estate

It may seem complicated, but the benefits of buying real estate as an investment in your future may be worth it. Owning property has its own tax benefits. In general, property appreciates over time. And income from a rental may be used to offset the cost of the property and its upkeep.

It's a great time to buy property. Housing prices are generally low and the economy appears to be improving. As always, consulting a financial advisor is recommended before making any changes in your retirement investments. If you would like to discuss options for financing an investment property, please give me a call to set up a consultation.

*We are not a tax advisory firm or financial planning firm. Consult your financial advisors for more information.

Should I Use My 401k for Real Estate Investing


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Movement Mortgage, LLC is an Equal Housing Lender. NMLS # 39179 | 877-314- 1499. Movement Mortgage, LLC is licensed by the "South Carolina Board of Financial Institutions" Lic # MLS-39179. Interest rates and products are subject to change without notice and may or may not be available at the time of loan commitment or lock-in.  Borrowers must qualify  at  closing  for  all  benefits. “Movement Mortgage” is a registered trademark of the Movement Mortgage, LLC, a Delaware limited liability company.

Posted by

Randy Shamburger

Senior Mortgage Lender 

NMLS# 322952        

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Comments (1)

Winston Heverly
Winston Realty, Inc. - Atlantis, FL

Randy,  a helpful read today that will definitely give us food for thought to today's message of keeping up with our real estate practices.

Feb 23, 2015 03:15 AM