Withdrawing from 401K

[James Wright]

Hello - I am new investor that recently started an llc with a partner to invest in buy and holds, and flips if the opportunity is right. I work a full time job with good income and great credit.

I have borrowed from my 401k to buy one house in cash, and will cash out refi once the renovations are complete - which will take less than a week.

I don't like having 401K payments drawn out of my check each month, plus dealing with potential vacancies. Financially, it is doable but tight.

I have considered doing an early withdrawal from my 401K which would give me significant cash and a safe cushion to start the business, especially with having a partner.

However, I would be subject to 10% penalty, 25% federal, and 6% state tax, about 41%.

Has anyone used 401K money to start, and how did you finance?

[Mark Graffagnino]

I'm going to be a little contrarian to the previous answers. I withdrew $50K from an IRA last year and used it as a downpayment on 2 rental properties. Both were short sales and I immediately gained about $60K in equity and am netting about $700/month in cash flow, after reserves. I plan on continuing to do this when I can find great deals.

My goal for 'retirement' is to have a portfolio of properties producing large amount of monthly passive income, rather than accumulating a large sum of money. I also plan to retire a lot sooner than whatever the arbitrary age is that someone else decides I can start accessing my own money.