So, this question came about because I was playing thought games. It is my understanding that a 401k isn't really an account type, but a thing with the tax code. Most employer sponsored 401k accounts have a limited number of investment options and are managed through an employer-chosen broker. However, it is possible to roll old 401k accounts in to the one with your current employer. So here's the train of thought...that seems to either result in a really nice benefit (loop hole?).
- Roll 401k in to a self-directed setup
- Purchase house within the 401k
- Rent house to yourself (possibly at a below-market rate)
This would obviously require enough money in the 401k to cover the cost of the house as (I'm assuming) this would preclude getting a mortgage. However, it seems like a way to essentially use the money in the 401k without needing to technically withdraw it. An amount for rent could be set to be more than enough to cover expenses related to maintaining the house (which an individual owning the house would be responsible for anyway) and yet be significantly lower than the cost of renting the same house from a regular landlord. Meanwhile, the house will appreciate in value (over enough time).
Drawbacks would be that you need enough money in the 401k to buy the house without a loan, but also enough going in so that you can still retire on the remaining amount.
To be clear, if this looks like it is entirely a scheme to pay less in taxes, that's because it is. It is also entirely hypothetical. At the moment, I don't see any benefit other than taxes to doing such a thing.
