Cash out 401k or leave in?

[Eric Maertens]

Hi BP, My question is should I cash out my 401k to invest in a basement rental at my current residence. I am 31 yes old, I have a 30yr VA loan on the property and finishing the basement will cost an estimated 50k which I was planning on using my 401k for. I have run the numbers on leaving my 401k invested vs the rental and the rental makes more sense. Conservative monthly rent is 1200$ a month. Last question, I know you have to pay taxes and a penalty on taking out early, but if the money is spent on an investment property (basement) would that money be deductible? So just the 10% penalty would be assessed?