401k question

[Tiankhy Hinton]

Has anyone ever tapped into their 401k to begin their career in REI? I currently have a 401k with a little over 100k. The retirement fund is mostly made up of employee contributions, employer contributions and deferred compensation. I'm 100% invested in my 401k and have the ability to withdraw a portion of my retirement to purchase a primary home without penalties or taxation. I don't have the capital nor strong credit to obtain a secondary mortgage or receive additional financing to purchase investment properties.

[Sean Pincus]

Tapping into your 401(k) has a couple disadvantages...

1.) If you lose, leave or stop working at your employer while the loan is outstanding... you will have to pay it all back immediately or it becomes a taxable event (income tax 25%+)

2.) While you pay back the "loan" to yourself, you will use after-taxed dollars... which means you'll put in dollars that have been taxed into a pre-taxed account. What this leads to is double taxation on those loan payback payments. 

3.) You can only take 50% of your VESTED not invested balance. If the $100k is vested, most likely they will only allow you to take $50k. 

4.) If you are using it for a primary residence that is fine, however; you are on BP and I assume you want to use it for an investment. If you do that, it won't have the 30 year payback it will have a 5 year payback GENERAL LOAN from the 401(k). 

Good luck!