401(k) Plan

A 401(k) plan is a type of retirement account that is offered to eligible employees in which a fractional deduction of their salary will be invested into a tax-deferred account of their choice. The employee elects to contribute a certain percentage of their pre-tax income. Often, the employer will match the employee’s contributions up to a set limit. After a certain amount of time, all money deposited into the account belongs solely to the employee. This is called ‘vesting’ and is a great option for a person who wishes to invest in real estate, as there is normally a process for borrowing against a 401(k) at an attractive rate. Those who are confident in their ability to repay their 401(k) may find that the rate and repayment terms are perfect for buying a house or investment property. The terms are individual to each plan, so it’s important for those considering such a move to read all of the fine print before taking out a loan against their 401(k) balance. For example, borrowers may need to send in a monthly payment or it may be deducted from each paycheck. While a traditional loan from a bank will require borrowers to have a down payment, acceptable credit scores and several property inspections, those who borrow against their retirement account can usually just request it and get the money. Those wishing to snap up a great property won’t need to wade through piles of paperwork or wrangle with a traditional loan to get financing. If the borrower is able to finance the entire amount using their 401(k), a down payment is also not necessary.