401k to purchase vacation rental?

[Jake Hartman]

Hello BP community! I’m sure this question has been asked ad nauseam but I want to see if there is any new info aside from what I know. Wife has a 401k from a previous employer. We are considering purchasing a vacation rental in Maui that has excellent #’s and would cash flow as well as letting us use for a few weeks a year free of cost. From what I understand if we roll her 401k into something self directed we CANNOT use the property ourselves. Are there any creative ways to access these funds that would allow us to use the property aside from cashing out and paying penalty and income taxes on it? I also have the option of selling 2-3 rental properties and using the equity to roll into down payment. Just trying to exhaust all options before we lay down a plan. All opinions greatly appreciated!! Thanks, 
Jake

[Dmitriy Fomichenko]

Jake,

First of all, the Solo 401k option mentioned above is only available for those who are self-employed or own a small business. If the only source of income for your wife is her employment she would not be eligible for a Solo 401k.

Second, the loan is taken from your 401k (not against it). And given the fact that it is a short term loan the payments on the loan will be high, which is likely to result in a negative cash flow, so probably not the best option.

And lastly, it is possible to buy a vacation rental in an IRA (here is a story about one of my clients doing it in Belize:

http://www.nasdaq.com/article/selfdirected-ira-pla...) but you are absolutely can not use that property for personal benefits.