Whenever I share my strategy for purchasing properties with my 401k, a few people undoubtedly ask if the same strategy is applicable to a 408k plan. What is a 408k? Like a 401k, a 408k is an employee sponsored retirement plan.
A 408k not as common as a 401k. It’s used in companies with fewer than 25 employees. I like to think of the 408k and the 401k as cousins.
Just like a 401k, most plans allow account holders to take a loan from a 408k. It’s the same strategy I’ve discussed before: not withdrawing from the plan, but instead taking a loan.
Withdrawing a loan is a surprisingly simple process. You can log on to your 408k providers website, request a loan, and have a portion of your balance transferred to your bank account. Then you have a large chunk of cash with which you can purchase a rental property.
You might be wondering about repayment. There is interest on this kind of loan. The good news is you’re paying interest back to yourself! You’re not borrowing from some big bank or other type of lender. Not only are you borrowing from yourself, but you’re also making your retirement account larger in the end!
Also, most plans require that the loan be paid back automatically. The repayment is deducted from your paycheck until paid in full. Usually this strategy can be utilized once per year.