Borrowing from 401k

Can you guys give me the costs associated w/ borrowing from a 401k? I have about 50k in mine and was thinking about borrowing half of that as a down payment on a rental.

Also, what is the timeframe for paying the money back?

One more… my wife has a 401k from the government (TSP) but no longer works there. Can we borrow from it?

Thanks for your help!!!


You need to contact the company that administers your 401K they will be able to give you the guidelines. There typically are not any fees.

As for your wife she will most likely not be able to touch her money until she reaches retirement age Government 401K’s and teacher retirement funds are usually locked up pretty tight.

Thanks for the reply Chris!

I assumed that the wife’s 401k was untouchable since she no longer works there. I just wanted to make sure.

she may be able to roll over the 401k to a self-directed IRA and then use the funds for investing.

Even though your wife no longer works for the govt. you should ask the 401k administrator if they grant loans. I have an old 401k form govt. employment and i can still borrow from it. Also, if you borrow from your 401k they will liquidate $x from your account to convert to cash and then fund your loan. Depending upon your 401k investments and the current market state you may be selling securities at a very low point in the market and miss out on any run-up (if it ever happens) in security values while the funds are outstanding in your loan balance.

Thanks BLL and71tr!!!

I will call the admin. to find out. Most money experts say never borrow from a 401k unless it is your last resort, but if I can acquire 1 or 2 properties at 60% ARV, the rent would be more than enough to repay the loans in 4-5 years. To me, it just seems the way to go. I know I could miss out on the beginning of the next bull market, but the prices of houses will be going up to offset some (or all) of that.

I used my 401K but only for for a short term loan. I got it at 4.25%. I would never depend on rents to pay it back, but I don’t know your situation. Mine is through my employer so if I lost my job, I would have to pay it back in full or it becomes taxable. I don’t see anything wrong with this tactic but be careful. You’re dealing with your own hard earned money for your retirement. I just thought I could make more with another rental investment as opposed to letting it sit there dwindling.

I want to do the same thing. Is there enough equity for you to refi, cashout and put it back into the 401K?

I just did it again, but last year when I did it (before bank loans got real tight), I got a 1st mortgage (8%) on the property w/o it being seasoned for 1 year. Put the 401K money back, paid off the the 2007 car and put a few $$ in my pocket. I still have a little equity left in the property but I’m moving on to the next one. All this was calculated BEFORE I purchased it.

I once took out a loan on a 401k. Typically you can only borrow 50% of the value of the 401k. They put the amount you borrowed into a secured fund/ fixed fund. The other part you can invest stocks. They charge interest on the loan, but you’re really paying youself back. Some charge a fee as a % of the total interest rate. Just keep in mind that if you lose your job or default on the pmts., you’ll be charged a 10% fee and you’ll have to pay taxes on the amount borrowed because its considered a cash out. This is unless you can pay off the loan in full.