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How to Buy Investment Property with 401K

Property buyers who are exploring different ways to invest in real estate can discover that different cash flow options exist. It is now common to tap into a retirement account to help fund purchases for homes. While some regulations do exists, learning how to buy investment property with 401K or IRAs can be beneficial to any new investor.

There are strict IRS regulations that are enforced with real estate sales. There is no ownership of a rental property allowed with a standard 401K, but there are ways that this investment vehicle can be used to fund a real estate investment.

 

Using a 401K to Buy Investment Property

Roll Your 401K into an IRA

The average person has more than one 401K account that has been accumulated from multiple employment. It is common to roll accounts into one or more accounts to reap the potential tax benefits of retirement planning. An employer sponsored plan or a self-employed IRA could be used to hold the balance of the rolled 401K. A distribution  from this new account could be used as a financial purchase for real estate. Asking questions to your current retirement account trustee can be helpful.

Personal Loan from Your 401K

While this scenario is not really a traditional loan, it will come with a repayment schedule that must be adhered to after distribution. Most accounts come with a restriction that allows up to $50,000 to be removed from a 401K as long as certain conditions are met. The cash removed during this loan could be used to finance a real estate purchase. Checking with a tax attorney or retirement account administrators is best when considering a 401K real estate loan.

 

IRS and Trustee Regulations for 401K Accounts

Retirement accounts can be eligible for tax benefits before and after income distributions. The IRS maintains an annual list of exemptions and rules that relate to retirement accounts. Reviewing the rules that apply to your own accounts could help you make a decision if retirement account withdrawals for real estate is the right choice. Any person who removes money could be penalized if a non-allowable transaction is made before maturity age of the retirement account.

 

Self-Directed IRA Options

A person who is self-employed or who rolls a 401K into another account explore the self-directed option. Instead of dealing with trustee regulations, the process is more relaxed and certain types of investments like real estate are allowed. Strict reinvestment rules for investment income apply to most IRA accounts and learning the rules can be helpful. It is possible to own and profit from real estate using a retirement account. Your personal financial situation and tax status could help you make the right choice.

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