While the real estate market has started to moderate, not posting the same quarter-over-quarter gains that we’ve seen in recent years, prices remain at or near record highs – particularly in major metropolitan areas. People who would otherwise want to invest in real estate have become increasingly skittish. Should they be saving for and investing in real estate, or would they be better off maxing out their retirement accounts?

What most people don’t realize is that this isn’t an either-or dilemma.

You can use both your 401k and individual retirement account (IRA) to invest in real estate. Moreover, contrary to popular belief, you can do so without suffering from steep withdrawal penalties. Here’s what you need to know about leveraging your retirement plans to buy real estate.

Requirements will vary depending on whether you’re using your 401k or IRA.

The primary distinction between the two types of retirement accounts is that 401k plans are capitalized through pre-tax dollars, as are traditional IRAs. Contributions to your Roth IRA are from after-tax income. As such, the requirements for how each type of account can be drawn on vary slightly.

Much paperwork is required.

One of the reasons people don’t use their 401k or IRA to invest in real estate is because of all the paperwork that’s required. Careful planning is necessary to meet all of the IRS requirements around doing so.

You can borrow against your 401k. You cannot borrow against an IRA.

One of the ways to invest in real estate through your 401k is by taking out a loan against it. Most plans will allow you to do so, but not all, so be sure to check with your plan administrator before pursuing this option. If it’s approved, most plans limit you to taking out a loan of $50,000 or 50% of the value of your 401k – whichever is lesser. Most plans require you to repay the loan in full within five years. These funds can be used to purchase real estate.

You’ll have to pay interest on that loan.

Taking a loan against your retirement account isn’t like getting “free” money – or is it? Yes, you’ll have to pay interest on the loan you take out. Usually, your plan administrator will tack 1-2 percentage points above prime. However, your interest payments go back into your retirement account, so you’re just paying that interest back to yourself.

You can withdraw unlimited principal from your Roth IRA to buy real estate.

What many people don’t realize is that they can withdraw the principal from their Roth IRA at any time, without paying taxes or penalties. That’s because your Roth IRA is financed with after-tax contributions. So if you’ve sacked away substantial cash in your Roth IRA, you can use an unlimited amount of the principal to invest in real estate. You do not have to be a first-time homebuyer.

You can purchase real estate directly through your IRA.

According to the Employee Retirement Income Security Act of 1974 (ERISA), the custodian of a self-directed IRA is free to invest; however he or she pleases. If your IRA is managed by a third-party, the custodian may not allow you to invest in real estate. However, there’s no legal reason why you can’t. A growing number of financial firms are offering self-directed IRA plans that make it easier to invest in real estate through your IRA.

The rules around buying real estate through your IRA are somewhat complicated. The government wants you to have at least an arm’s length distance from the investment. As such, if you purchase real estate through an IRA, you cannot live in or actively manage the property. Technically, the title to the property is held by a custodian for the benefit of the IRA (you cannot be the custodian). You must also hire a third party to handle all operations. Also, any revenue generated by the property – whether it be rental income or sales proceeds – must flow back to the IRA to protect the tax-deferred status of the account.

There are some drawbacks to using your retirement accounts to buy real estate.

First and foremost, you need to realize that if you take out a loan against your 401k, the loan must be repaid by the deadline. Otherwise, the loan is considered and taxes as though it were an early withdrawal. So, if you lose your job or are otherwise unable to pay, this loan could cost you more than you've bargained for. You should always budget accordingly.

Second, there’s no guarantee that your real estate investment will generate a higher return than the stocks, mutual funds, ETFs, etcetera, that your retirement plan is already invested in. So unless you think you can do better in the real estate market, you may not want to touch your retirement account right now.

Passive investors may prefer a middle-ground approach.

Owning income-generating real estate isn’t for the faint of heart. If you don’t want to take on the responsibilities of a landlord, consider using your retirement to fund more passive real estate investment strategies. For instance, you could buy stock in a real estate investment trust (REIT). There are also are a growing number of crowdfunding platforms, such as Realty Mogul and Patch of Land, that allow people to invest through their self-directed IRAs.

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Still not sure which investment approach is best for you? Consider sitting down with your accountant or retirement advisor. Investing in real estate, via a retirement account or otherwise, should always be evaluated in the context of your larger retirement goals.