Using 401k to invest

[DJ Dawson]

Hello all!! I recently left my employer and am looking for a way to roll my former employer match 401k into another avenue that I can use to invest into real estate. I’ve heard a lot of different takes on this so I thought I would take it to the forums to get more insight. Thanks in advance for any and all help!!

[Brian Eastman]

@DJ Dawson

In order to preserve the maximum amount of account value (no tax hit) and retain the tax-sheltered status of the funds, you would want to look into a self-directed IRA, or if you will be self-employed with no full-time employees, perhaps a Solo 401(k).

These self-directed retirement plans provide the flexibility to invest beyond the stock market into assets such as real estate.

Of course, it is not "you investing in real estate", or something where you can draw current income.  It will still be a tax-sheltered retirement plan and everything has to be done at arm's length and exclusively for the benefit of the retirement plan.  It is simply a means to diversify your savings into an asset that you may understand better and have more control over.

For you to have access to the funds personally, you would need to take a distribution, which will involve federal and state taxes, as well as a 10% penalty for early distribution if you are under age 59 1/2.  In California, that likely means giving up about 45-55% of the value to taxes, which likely does not make sense.