To 401K or Not to 401K

9 Replies

I'm new to real estate investing and have been thinking about it for what seems like an eternity. I've been spending a lot of time thinking about retirement. Frankly, I'm not optimistic about whether my 401k/IRA's are going to be enough when I decide to retire - I guess thats part of the issue - I may never get to retire... I'm looking at real estate as a possible enhancement to my retirement plan. The way I'm looking at it, cash flow from RE is the way to go. Seems to me regardless of what the stock market does(look at last week) real estate is always going to provide cash flow for me. The more I look at it the more I think retirement accounts are a waste of time - I ought to be putting my money in real estate and building a reliable cash flow that can carry me through retirement.

I'm wondering if I should stop contributing to my 401K and use those funds for REI... I've got about 300K in an IRA - maybe I use those funds as well... I guess I'm looking for your thoughts on this. Any thoughts - anyone thinking/ doing something similar?

Thanks

Keith

@Keith Schuster

Many people experience your same concerns about retirement. More control will alleviate some fears borne of using "Hope" as a strategy. I assume your level of experience in real estate is minimal. If you take your money out of your retirement accounts prior to reaching eligible distribution age you will be subject to a 10% penalty. Don't do it until you, at least, investigate self directing IRAs/401ks. 

I personally love to do real estate in tax deferred/free accounts. I would suggest you look at self direction of your retirement accounts. This gives you the best of all worlds. Educate yourself on self direction --most administrators have a lot info on their websites for free. 

I do have to let you know that I am a third generation real estate investor and also a founder of CamaPlan a self directed IRA company. Be aware that Real estate can have increases and decreases, a lot like the stock market. It also is more work than stocks in my opinion. However, It is nice when a tenant stays for ten years and pays off your mortgage. It is not so fun when a tenant moved out yearly or earlier. One of my favorite things is to receive rental income when I am on vacation. Real estate rentals are also a hedge against inflation. I think you can see my point--Make sure you understand the pros and cons of each deal you do. Good luck -I believe you are on the right path --let me know if I can help in any way.

I'm self-employed and have max out my solo 401(k) plan, but if I were working a job, I would, at the least, invest up to the max of any company match I was eligible for.

In 2013 I stopped 401k/IRA contributions. I'm investing that annual savings in real estate. We have 3 rental properties with the goal of adding one per year. I have no plans to tap into existing tax deferred savings. However, once we max 8 conventional loans I may reconsider a self directed IRA.

I'm self employed, so a company match doesn't apply, but I do loose the tax deferment.  

Right decision?  I don't know... but after 17 years of picking mutual funds and working with a financial planner, this is much more exciting!  I love the hands on and cashflow.  I went from checking my retirement portfolio once every 4-8 weeks, to reading and researching RE on a daily basis.

If you receive a company match contribute at least enough to get the match, otherwise your just throwing away free money. After that it's a personal decision.

I'm on schedule to max my 401k this year, but am probably going to decrease my contributions to save faster towards a rental. I've been struggling with that decision for a week or so now, but my accessible savings can't seem to climb past 10k so that's what I'm going to have to do to get enough funds together. Once I have some cash flow coming in from REI I'll max my 401k again.

@Keith Schuster , welcome to BP. You are taking a great initial step to educating yourself about real estate and working toward implementing what could be a life-long income strategy.

While a passive "market based" investing is a great way to approach a well rounded strategy, there is no replacement for safe real estate investing.

Most people can retire on 5 good rental properties. 1800 x 5 = $9K per month.

Originally posted by @Jack Butala :

@Keith Schuster, welcome to BP. You are taking a great initial step to educating yourself about real estate and working toward implementing what could be a life-long income strategy.

While a passive "market based" investing is a great way to approach a well rounded strategy, there is no replacement for safe real estate investing.

Most people can retire on 5 good rental properties. 1800 x 5 = $9K per month.

 This is exactly what I'm thinking... my 401K is taking a beating this last week...  I want that 9k!!!

Thanks everyone for the feedback. I'm going to look into using the IRA.... Could be a great way to start the journey

Keith

Originally posted by @Steven Butala:

Most people can retire on 5 good rental properties. 1800 x 5 = $9K per month.

Steven, while I agree with you that most people would be comfortable with $9K of income per month, I don't think that the cash flow of $1,800 per month an average per property is realistic (unless you are referring to multi-family).