Self Directed 401K Questions

[Donna Lockwood]

Hi, 

I have a few questions related to using funds from my self directed 401k.

I purchased a flip through a hard money lender and my note has come due. I'm going to lose regardless on this flip because of the interest and renovation costs I've paid to date. Here are a couple scenarios I have and I need to know if they are legitimate options.

1. I sell to an investor and it doesn't cover the entire note owed. Can I pull the remainder money needed from my 401K to pay the lender in full knowing that money is a loss? Will I have to pay it back or can I take the loss on my taxes?

2. I use the 401k money (80% of note) and my personal funds ($20% of note), because I don't have enough in the 401k to pay the note back. When I sell the house, which will still be at a loss, what are my options? Am I required to put all of the funds from the sale back into the 401k regardless if they're the amount I took? or; Would I put 80% of the sales back into the 401k even though it's not as much as I took and the remaining 20% back into my personal account? or; Can I just take the entire thing as a loss at the end of the year on my taxes.

Any advise is greatly appreciated!