So, if you need money from your 401k plan, there is no better time than being 59.5 to take a withdrawal if you need it.
Since, according to the IRS, you are standard retirement age, you can take this withdrawal without fear of paying the dreaded 10% early withdrawal penalty.
You will see that at first glance, it may seem to make sense to liquidate the 401k, but be sure to keep reading, as there are better options.
As always, this would be one area that you should consult with a financial advisor about and get their opinion.
Most financial advisors and older folks will tell you that it’s better to contribute to your 401k and let it grow tax-deferred.
Still, by taking a loan against it, you are not getting penalized and your 401k is still growing tax-free. Before making the loan request, be sure to talk to your lender.
Taking a loan out against your 401k does reduce the amount of your reserves and therefore may impact your ability to get financing.
This is for investment property only so most lenders will require at least 15% down and sufficient cash flow. You will be paying your solo 401k interest of approximately 4.0%.
This is certainly not the best use of your 401k money, but if you do not care much about the balance of your 401k and are looking to invest in real estate to achieve early financial freedom, this may make sense.
I am just obsessed with the notion of financial freedom and love exploring ways to expedite the journey. There are other things to consider including in your reserves, as well as other creative ways you can reap the high returns of real estate, tax-deferred. In order to qualify for any conventional-type loan that is sold to Fannie or Freddie, you need to have a certain amount of months of reserves (or liquidity).
At 25 years old, you are probably taking your first steps in your journey towards financial freedom. Lenders consider your 401k as part of your reserves, so losing ~40% of it through liquidation will be a huge hit.
That means that the low-down payment, owner-occupied loans are not available. You can give yourself a loan from your 401k for the lesser of ,000 or 50% of your 401k's balance.