Leverage your 401k
All right. 401 K leverage, hey, this is really awesome right here. Keres Act went out there and told everyone, hey, there’s no more penalty for withdrawing from your 401k. What they didn’t tell people, what people don’t know is you still have to pay income tax on it. Unless it was Roth, of course, but you start to pay income tax on it. So you’ve got to pay the piper in order to avoid all that you can borrow from your 401k.
Don’t withdraw. You can take a loan. A lot of clients do this when they don’t want to sell first and they need a good down payment. Or maybe they do it on their first home purchase. They have a good size in there.
For one, they can take a loan against it. What does that look like? Let’s say I have one hundred thousand dollars in my 401k. I take a loan for fifty thousand dollars. Over the next five, 10, 15 years, whatever the term is of that for in Cologne, so I get fifty thousand dollars tax free because I’m not withdrawing, I’m loaning, I’m acting as my own bank. I get fifty thousand dollars. I can go buy my house.
Now, out of my paystub, there’ll be a new line item that says 401k loan repayment. So I pay my loan back through my pay stub, through my work every time I get a paycheck. Now, what’s cool is you just did it. Yes. Lenzi very powerful. Very, very powerful. What’s cool about it is every penny of interest that I pay on that for one car loan goes to me. It goes to my retirement. So what’s happening is I’m borrowing money. I’m leveraging money from myself to buy a real estate asset that appreciates OK, which is cool.
And then every penny of interest I pay on my down payment, my retirement comes sooner, goes faster. So it’s a phenomenal tool. People kind of when they hear for one, they kind of, oh, I don’t want to I don’t want to withdraw, don’t withdraw. But you can borrow against it.
The problem comes only if if I do it for one loan and I’m at I work at Amazon, I borrow and then six months later I decide I’m going to leave that job and go work at Microsoft. Well, now I’ve got to pay the piper because that 401k loan was through that company sponsored 401k. So just be really careful about it. But it’s a great tool. I would say that a lot of first time homebuyers are using it. It’s a great strategy for people who want to buy before they sell. Which brings me to my next topic.