401k

[Justin Marshall]

Looking for input on whether to use 401k for the purchase of a flip or buy and hold.  What are the pro's and con's of this option?  Any advice would be appreciated.  Also how many time can you borrow against your 401k for investing purposes?

[Brian Eastman]

@Justin Marshall

There are two approaches to using 401k funds for investing.

You can borrow from an existing 401k.  This is now your money being invested in real estate, not the 401k per se.  There are limitations on loans and you would need to speak with your plan administrator for details about frequency. You are limited to the lesser of 50% of your vested plan value or $50K.  Remember, you are replacing the pre-tax dollars you borrow from the plan with after-tax funds, so this is not as often promoted "cheap money".

Alternately, you can setup a self directed IRA or Solo 401k if you are eligible. With this option, the plan itself is investing in real estate and all returns go to the plan (not to you). There is a lot of good information here on BP, but no one single answer as to whether such a plan is right for your specific situation and goals. To determine that, you will need to learn more about such plans, how they would intersect with your investments, and speak with your tax advisor.

Generally speaking, a self directed IRA or 401k is a means to diversify your retirement savings beyond just stocks/funds and be able to put your long term savings in real assets such as income properties, mortgages, etc.