Using 401K funds for a flip

[Matt DuSold]

Sorry if this is answered, I feel like I've seen a lot of different responses on BP and then different responses on the web as well. I guess my question is pretty simple, can you use 401K funds for a flip and if so how much and what is the process like?

I've seen things say you can essentially borrow the money out of your 401K and then just pay it back like you would a loan. I have also seen things say you can only borrow up to 50k. I am sure this is somewhat dependent on the specific retirement plan itself. Has anyone had previous experience with this?

Thanks for your help!

[Jon Holdman]

If you're still working for the company where you have the 401k its very unlikely they will let you invest in anything except the handful of funds they have selected. If you quit, you can roll it into an IRA and then you have more flexibility, though you may bump into tax issues if you're doing fix and flips or wholesaling. If its a traditional IRA and you engage in these active businesses your IRA will be subject to unrelated business income tax (UBIT.)

You can typically borrow. Your plan will have limits on the number of loans outstanding at once, typically just one. And you're typically limited to $50K or 50% of your vested balance, whichever is less.

If you take a loan then leave the company, you may have to pay it back very quickly. Depends on your plan. Some let you continue to pay over time, some want full payment right away. If they want payment and you don't pay, the outstanding loan amount is considered a distribution and you will owe taxes and penalties.