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[quote=Anonymous]To follow up:

Say you need $200,000 to purchase an investment property.  To clear that out of your 401k, assuming you have an HHI of over $217,450, you will need to take out about $350,000.  So you do that, and you buy your $200,000 property.  Say you get $2000 per month in rental income, which is WILDLY optimistic.  It will take you 175 months, or almost 15 years, to make back the amount you removed for your 401k.  And that doesn't take into account the taxes you pay on the rental income, repairs, vacant months, or the fact that there's no effin' way you're getting $2000/month on a $200,000 rental property.  So call it 20 years.

In 20 years, at a 4% rate of return, that $350,000 you took out of your 401k would be about $800,000.  Still tax deferred.

Real estate can use the tax code to its investment advantage, when you find a property that pays for its own carrying costs (PITI + vacancy rate) and you build equity using other people's money.  But the margins are pretty close, even when considering the high rental incomes around DC and the historically low interest rates.  Adding a 10% penalty on top of that, plus the income taxed at yor highest bracket, will eliminate those benefits in all but the most fantastic investment opportunities.

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