Rental Property Investor · Los Angeles, CA · Member since 2018 · 17 posts · 3 votes
Have $100k In my 401k, would it be wise to cash out the entire amount for a rental property? What would be the tax implications? I live in CA. I know I would pay the tax on it now, but it was all tax deferred contributions any way and I’m going to pay the tax when I retire.
401k distributions are subject to both federal and state taxes. Also, an additional 10% early distribution penalty applies if you are under age 59 1/2 unless you meet the age 55 exception.
Please see the following regarding the distribution rules.
401k distributions are subject to both federal and state taxes. Also, an additional 10% early distribution penalty applies if you are under age 59 1/2 unless you meet the age 55 exception.
Please see the following regarding the distribution rules.
Under certain circumstances, you can roll-over your 401k to a self-directed IRA and buy a rental property from your IRA.
1. You no longer work for the company that sponsors the 401k.
2. You have reached a certain age, 59 1/2 for many plans.
3. If you rolled an old-employer 401k into a new-employer 401k, you can access that portion that you rolled over.
But if you buy real estate from your IRA, YOU ARE GOING TO HAVE TO GAIN SOME UNDERSTANDING of the limitations. Some people claim that changing a light-bulb in your IRA-owned rental property is self-dealing.
Rental Property Investor · San Francisco, CA · Member since 2016 · 52 posts · 48 votes
8y
I wouldn't recommend it if you are going to pay the 10% penalty on top of the regular income taxes. Look into rolling it over into a self-directed IRA and, as others have stated, do some research on it because there are pitfalls.
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
8y
@Seann Brown Have you looked into the possibility of taking a loan from your 401k? You couldn't use the whole 100k, but perhaps enough for a down payment on 1-2 properties. The cash flow could potentially pay the entire amount of the loan each month, and you'd be getting the tenants to pay down mortgage, plus extra tax benefits.