Lessen 401k contribution and use it for rental property!?

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Lessen 401k contribution and use it for rental property!?

Loan Tran
Rental Property Investor · Charlotte, NC · Member since 2018 · 10 posts · 3 votes
Does it make sense to lessen my 401k and use the extra monthly money to invest in rental property!?
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Dmitriy Fomichenko
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
8y

@Loan Tran,

If reducing your 401k contributions means you losing your employer match - that answer would be definite NO, it would be very unwise to give up free money. However, if your employer does not offer matching contributions or if you contribute more than the match - then you should lower your contributions to get the full advantage of employer match limit and rest can direct either in an IRA (which can be invested in alternative assets such as real estate) or grow your personal savings that you can then invest as you wish.

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  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    3y

    @Loan Tran

    Yes. This is what I’ve been doing for 7 years once I first started investing in RE. 401ks aren’t as great as people think. However, I’ve done 3 401k loans that allow you to pull out up to 50k tax free. I pay my 401ks back with the rental cash flow then take out another loan to buy a house or pay for a rehab. So 401ks aren’t totally useless. Lol

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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Anthony Gayden:

    $50,000 may seem like a lot, but after you get hundreds of thousands in your 401K that you can't touch until you retire, and you are trying to do larger real estate projects that require much larger sums of money, you will realize that it wasn't the best idea to lock all of your money into these accounts.

    this is one of the best analyses ever.
    I had the same view as you.

    In fact, I'd rather have regular taxable in M1 than 401 because I can control it, but the best of course just doing BRRR/LTR/STR/flips at the right time at the right location.

    The biggest problem with 401k is you can only enjoy your money when you can no longer taste the money in a fun way. 

    If we leverage enough rental/houses during QE era, that itself is already more than enough for retirement.

    Now coming to QT era, the time is for deleveraging.

     

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    3y

    401K is a great tool if you are not good with managing your investments and need help managing your money for when you retire.

    I personally do not like that 401k's makes my money feeling like they have a 30 year jail sentence and can't leave until I turn 59.5

    I think 401k's are good until the company match but that is about it but that even sucks as companies normally require years of working with them until they vest...

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  • John M.
    Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 801 votes
    3y

    I agree that 401K's are good up to the match, but beyond that I wouldn't bother.  It's great that you defer taxes with a 401K but you also are deferring opportunity in real estate!  Have some cash to invest now.

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  • Ace Kaspar
    Investor · Raleigh, NC · Member since 2022 · 113 posts · 71 votes
    3y
    Quote from @Loan Tran:
    Does it make sense to lessen my 401k and use the extra monthly money to invest in rental property!?

     HI Loan,

    I would at least match your employer so you don't leave money on the table. 

    I think about this situation when it comes to my ROTH IRA a lot but it all depends which route you want to go.

    Although to keep it simple, I would highly encourage you to at least get the employer match.

    Best,
    Ace

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