Using a 401(k) to Buy Real Estate: Your Options

Yes, but the way you use your 401(k) matters. You may be able to borrow from your plan or withdraw funds to buy property in your own name, while some plans allow investment in real estate through a self-directed account. These routes have different tax rules, costs, and restrictions, so start by deciding whether the property is for your personal use or an investment.

If your plan permits loans, you can generally use the proceeds toward a down payment or purchase. Compare the required payment with your housing budget, and ask your plan administrator what happens to the balance if you leave your job.

A withdrawal gives you cash without a repayment schedule, but it may be taxable. If you are under age 59½, a 10% early-withdrawal penalty may also apply unless you qualify for an exception. Unlike an IRA, a 401(k) does not offer a general first-time-homebuyer exception, so calculate the after-tax amount before relying on it for a purchase.

Some self-directed retirement accounts can hold real estate as an investment, but the account must own the property and pay its expenses. You and certain family members cannot personally use the property, and prohibited transactions can have serious tax consequences. For the account-ownership route, read our guide to buying real estate with a self-directed IRA before choosing a custodian or property.

For a home you plan to live in, compare a 401(k) loan or withdrawal with financing that leaves your retirement savings invested. For an investment property, compare account fees, available cash for repairs, and the rules on personal use. Our team recommends getting the plan’s written loan and distribution terms, then reviewing the tax implications with a qualified professional before committing to a purchase.