Investing Your 401(k) in Real Estate

Do you plan to expand your financial horizons, but wondering how to save up the funds to invest in real estate? Think no further, because you already have it.

We all have retirement accounts and admit it they are not performing at optimal levels or contributing in any significant way to our financial freedom. But what if we tell you that you can actually free up this money and use it as the perfect seed capital to start investing in real estate? Yes, there are ways to do that without having to pay any penalty or tax, or waiting till you are 59.5 years of age.

In this blog, we will discover the various ways to use your 401(k) to start investing in real estate for a better financial future.

Why Should You Take Out Your Retirement Funds to Invest in Real Estate?

If you do the maths, you will realize your 401(k) or IRA is not significantly contributing towards your retirement and is not getting you the desired financial independence.

Let’s say you have $500,000 in your retirement account today. With an average annual return of 6%, after 30 years, your retirement account could reach around $1.8 million. That sounds good enough, but we still have inflation to consider. Inflation that is hovering at an average of 3.5% per year reduces the value of money over time. Thus, the purchasing power of your $1.8 million at retirement would be equivalent to about $900,000 in today’s dollars. Scary, right?

Additionally, your retirement money sitting in the stock market goes up and down every day. Wouldn’t you instead want to secure your precious retirement money in investments that get you recurring cash flow? With a little bit of research and understanding, you can free up your retirement money from these funds and use it to start your real estate investing.

How to Invest in Real Estate with Your 401(k)?

There are 2 popular methods of using 401(k) to invest in real estate:

1) Borrow From Your 401(k)

There are three benefits of using this approach. Firstly, you are not borrowing from a bank or somebody else, but you are borrowing money from your own 401(k). Secondly, you get to write off the mortgage interest in your tax statement and make it tax-deductible. That is not only are you paying interest to yourself, but also writing it off from your tax income. And thirdly, you get to buy a rental property with this money. These properties provide recurring cash flow and safeguard your money from inflation.

And the best part of this approach is that no penalty is involved. It is a tax-free method of using your retirement funds to invest in real estate. After all, it is your money sitting there, why not leverage it?

2) Roll Over Your 401(k) to a Self-Directed IRA

First thing first, what is a self-directed IRA, and why to choose it?

A self-directed IRA is a self-directed individual retirement account that gives you better control and more investment flexibility over your own retirement money. While 401(k) restricts your money and gives you limited investment options as decided by your employer, with self-directed IRAs, you can diversify your investments and save your money from the economic downturn and inflation.

You can rollover your 401(k) funds to the self-directed IRA. There are two methods of this rollover: direct rollover and indirect rollover.

A direct rollover is where your 401(k) funds are directly transferred to your self-directed IRA custodian. To facilitate this process, your 401(k) plan administrator will walk you through the process, and the financial institution where your money is going will be more than happy to assist. This method is generally straightforward and helps avoid any tax withholding or penalties. You just have to ensure that you open your new IRA first and then contact your 401(k) plan administrator to begin the rollover.

In an indirect rollover, you receive the funds from your 401(k) plan, and then you have 60 days to deposit them into your self-directed IRA. However, in this method, the 401(k) plan administrator withholds 20% of the distribution for taxes. To avoid taxes and penalties, you must deposit the full distribution amount, including the withheld amount, into the self-directed IRA within the 60-day window. You’ll later claim the withheld taxes as a credit on your tax return.

Throughout the process, it is highly recommended to consult with a financial advisor or tax professional who specializes in self-directed IRAs. They can provide personalized guidance and ensure you navigate the rollover process correctly while adhering to tax and retirement account regulations.

Once the funds have been transferred to your self-directed IRAs, you can start investing in the assets of your choice.


Opening a self-directed retirement account or taking a loan against your 401(k) gives you more control over your financial future and helps you safeguard your money from market volatility. After all, these are your retirement funds, and you should have access to every investment option for growth.

If you are looking for a more hand-off option for real estate investing, choose multifamily syndication, where you get to reap the benefits of recurring cash flow without having to deal with the hassles of tenants, toilets, or trash. Crown Capital can guide you through the hurdles of structuring your funds, searching and acquiring a property, and managing it for optimum profitability. Get in touch with us now.

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