Borrowing Money from 401K

[Stephon Shaw]

Good Day BP, 

I need a second opinion.  Would it be logical from me to borrow money from my 401K to purchase a home whether for myself or for rental purposes? Can this be done? Are there any other strategies you'd suggest? 

Thanks, 

Stephon Shaw 

[Scott Hollister]

Hello @Stephon Shaw,

We just had a presenter speak about this last month. There are two ways that would make sense. (This is the information I was taught, please do your own due diligence to verify tat the information is correct)

1. You can borrow up to $50,000.00 while paying back interest to yourself. Not a bad deal to play the bank AND invest.
2. You can take out money for use of downpayment on your home. There may be a "hardship penalty" subject to a 10% tax. (Check your policy for 1 time exemptions) 

Again, I would do your research to see if this is the right choice for you. 

Part 2: Wise Investment Advice:) 

My advice would be to NOT use your retirement account UNLESS you are going to get a better return with the investment you will be making. 

• This might be buying a home and getting a COC return of 20% while you are only paying yourself 3% interest. Therefore getting 17% return. (More like 23% because you're paying yourself back)
• Whereas if you just left it in the stock market you might only be getting a 8% return. 

I cannot wholeheartedly advise that you use it for a purchase of a primary residence, once you put that money down on that house it is "useless". That means you cannot access your equity, it is a sitting duck bringing no money back into your pocket. The goal is to have your money go make friends and have those friends make friends. 

Part 3: Best case strategy

Use that money to purchase an investment AND a home. Look into house hacking, you can make money and have a place to live:) Good luck Stephon and remember the options are endless. Just make sure you are being wise with your money.