The Help Desk

Your tough questions. MONEY's smart answers.
Presented by

Can I borrow from my retirement savings to buy real estate?

August 3, 2012: 6:30 AM ET

Can you borrow from an IRA, 401(k) or Roth IRA to invest in a rental property or a business? — Bob H.

It can be tempting to borrow money from your retirement funds, but it's usually not a good idea, warns Frank deNapoli, senior vice president at Winslow, Evans & Crocker in Peabody, Mass. "You're shortchanging your retirement," he says.

Assets you take out of your nest egg will not have an opportunity to grow until you pay them back. That means you could be missing out on years of potential tax-deferred compound growth.

Most 401(k) plans allow loans, but borrowing is governed by strict rules. For example, you typically can't borrow more than $50,000 or 50% of the value of your 401(k). And you'll need to begin repaying that loan at your next pay period. If you're borrowing the money for most reasons, including to invest in a rental property or a business, you'll have up to five years to pay back the loan. (Loans to purchase a primary residence have longer payback periods, typically around 10 years.)

DeNapoli stresses that 401(k) loans should be an option of last resort. One reason: If you lose your job, you'll have to pay back the loan immediately or the IRS will treat it like an early distribution. That would trigger a 10% early withdrawal penalty in addition to income taxes.

As for IRAs, borrowing against them is prohibited except in self-directed IRAs. That type of account allows you to use your retirement assets as collateral for a loan on certain types of real estate. While this option poses fewer risks than borrowing from your 401(k), it's still dangerous: You're taking money out of your (presumably) diversified retirement portfolio to invest it in a single asset. "You're gambling your retirement assets on the real estate market," deNapoli says. "It could end in tears."

— Marc Mewshaw

Got a question for the Help Desk? Send it to

Join the Conversation
Help Desk

Got a question about your money? We want to hear it! Each week we're answering your questions on CNN, Headline News and

Your email or phone number won't be published; we'll use it to get in touch if we need more information about your question.
Help Desk Video
  • NEXT
    Not enough money in America's 401(k)s
    Despite the surging stock market bringing balances to record highs, the average Fidelity 401(k) account has less than $100,000 in it. That's just not enough. Play
  • NEXT
    Explaining Obama's myRA
    President Obama unveiled a new savings plan for retirement accounts, aimed at encouraging people to start building their nest egg. But how exactly does it work? Play
  • NEXT
    Tricks on how to save in your 20s
    Saving for your retirement in your 20s doesn't have to be a financial burden. Prioritizing your expenses is usually the first step in building a nest egg. Play
  • BACK
    Don't get fooled by Black Friday sales
    Here are some of the tricks that retailers use to make you think you're getting a deal. Keep an eye out for them while shopping this Black Friday. Play
Best Tips
Some of the nation's leading business owners, investors, and thinkers share their thoughts on rebuilding your wealth. More
These strategies can help you manage the challenges -- both emotional and financial -- of helping an aging parent from afar. More
You don't need to be fanatical to get to 780. Those in the know say these moves matter most. More
Featured Newsletters

Tips for saving and spending smarter.

Search This Column
View all entries from this: Week, Month
Help Desk
More help for your career, your investments and your budget.
Powered by VIP.