What are your thoughts on using a 401k of $350,000 to purchase a property?

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  • #85394 Reply

      Over 60 yrs old so no penalty but taxable income would come in to play.

      Would applying it to a property purchase offset the taxes in any way? Is owning property equivalent to having a 401k?

      Hope this makes sense! Thank you for your kind guidance!

      #85395 Reply

        Get ahold of Pacific Premier Trust. (Back when they were PENSCO- PPT bought them- they helped me use inherited 401K funds to purchase Rental Property. Since it was a purchase, and not a distribution, I saved about 100K in taxes.)

        #85396 Reply

          Do you want to be a land lord and collect rent checks and fix the broken AC and clogged toilet or do you want to just spend the dividends that roll in every year. One isn’t necessarily better than the other.

          It all comes down to how you want to spend your time. If it’s a traditional 401k, that all comes out as ordinary income so you’d get taxed on the full $350.

          You’d have to talk to a tax pro on the tax deduct on the investment property and how to structure it.

          If it is a traditional 401k (vs a Roth 401k) spreading out the withdrawals over many years will lower your taxable income and thus tax bracket each year.

          Don’t miss: I’m thinking about using my 401k to pay off the car, is that stupid?

          #85397 Reply

            The other option is a self directed 401k and having the 401k buy the rental. I’m not a fan of the extra restrictions so I wouldn’t do it.

            #85398 Reply

              Assuming we are talking about a rental property it sounds like a terrible idea.

              I wouldn’t take the tax hit all in one year. Could you get a mortgage and take money out over five or more years to pay it off? Unless you are a real estate professional you can’t deduct real estate losses.

              You can deduct up to $25,000 if you are fairly low income but you won’t be in that income range if you take the 401k withdrawal.

              Do you have other income or assets? Is that your entire 401k?

              #85399 Reply

                if you bought a property as a vacation rental, you could probably wipe out the taxes with a cost segregation study. only a RE investor -focused cpa would know for sure tho. don’t understand your second Q.

                #85400 Reply

                  I wouldn’t do it. What’s the cash flow on the property though? If you can rent a $350k house for $3000+/mn, than a 10% return per year sounds good.

                  Anything less and I’d stick with the 401K.

                  Any repairs, maintenance, missed rent payments, etc could tank those returns quickly too.

                  Explore these too: Is it possible to buy property in Europe in a way that it can be then transferred to descendants?

                  #85401 Reply

                    bad decision, leave the money invested, get the earnings to pay for the house, always use someone else’s money to buy big purchases, just leave the money in the s&p 500.

                    #85402 Reply

                      I’ll say you invest in crude oil and solar energy.

                      You could make 50% of that Amount in 18 months.

                      And probably use the earnings to buy a house…

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