Should I cash-out 401(K) or let it grow?

[Marc Ferguson]

Hi, I have a 401(K) savings plan with a previous employer valued at under $50,000. I'm wondering if I should withdraw and hold the money in my brand new real estate investment bank account or if I should continue to let it grow until I need it for a downpayment on my next property? There are plenty of penalties if/when I withdraw it. I'm unclear at what point is it worth paying the taxes on the capital gains if I'm not immediately using it.

Word-on-the-street is having money in my bank account looks good to banks when I'm looking for a loan. Does it matter that the money is just sitting there or do they want to see some activity with that account? Thanks for any advice.

[Basit Siddiqi]

@Marc Ferguson

I previously took out a 401(k) Loan and then ultimately took a 401K distribution to get started in real estate investing.

Some cons of taking out a 401K loan are that it gets added to your taxable income and taxed at your marginal tax rate.
There is a 10% penalty if you take a distribution.

Why I think taking a 401K distribution is not as bad as people make it seem to be.
Once the money is yours, you are not tied to the strings of a 401K - You can do whatever you want with the money and don't need to wait FOREVER until you are 59.5 years of age.
You are transferring it from one retirement account to 'another retirement account'. I consider real estate investing a sort of retirement account, hopefully after 15 / 30 years of investing you have a paid off investment that is also providing cash flow.

Taking a 401k distribution can accelerate the time it takes to get into real estate investing - It is not about timing the market but time in the market.

Also, if you can get a real estate property for under market(say you brought a $100,000 property for $90,000), you already made up for the penalty that you had to pay for the IRS.