Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
I recently listened to the podcast GRE (Get Rich Education with Keith Weinhold) and his guest was Ted Benna, who has been credited to being the father of the 401K. (Here is the link to the episode for any who are interested: https://itunes.apple.com/us/podcast/get-rich-educa...)
In the interview Benna stated that the 401K has veered from what it’s intended purpose was and that the mortgage fund brokers are the ones getting rich through the fees that they charge rather than the actual participant. He shared that it’s benefit has been that it can be a forced savings plan for most people, especially for those who have a hard time saving.
Benna then shared that he is a real estate investor.
I think it is so sad that the majority of people think that the 401K is the way to go for retirement. It is definitely a cultural belief now and, in my opinion, it makes people lazy investors. Ultimately the 401K makes the brokers and managers rich while the investors get what’s left over, if anything. I agree with Benna. I think we should blow it up. What do you think?
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
The employer match is both (1) the best return (by far) of any investment in my personal savings portfolio and (2) the easiest investment. Worst case scenario...take the 100% match and then take a hardship withdrawal down the road and pay the 10% penalty. And many of us are in index funds with minuscule fund fees (mine is 0.17%).
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
The employer match is both (1) the best return (by far) of any investment in my personal savings portfolio and (2) the easiest investment. Worst case scenario...take the 100% match and then take a hardship withdrawal down the road and pay the 10% penalty. And many of us are in index funds with minuscule fund fees (mine is 0.17%).
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
8y
@Mike Dymski Thanks for your comment. You make 2 really good points. If your boss or company matches your contribution, it makes sense to invest up to the full match. Of course there are some companies which make their contribution based on a vesting schedule where you need to work there for a certain length of time for the companies contribution to truely be yours. Secondly, it is very passive and hopefully you have a management company that has minimal fees. I was just reiterating what Benna was saying on the podcast that the fund managers are getting wealthy off of the 401Ks whereas the the individual investors are not benefitting from it as much as it was initially intended.
Rental Property Investor · San Jose, CA · Member since 2016 · 114 posts · 54 votes
8y
@Shiloh Lundahl, Please realize this that not everyone is born with Entrepreneurial bone like many here on BP. For those who can't, I believe 401k is the best option by far otherwise uncle Sam takes a big bite out of your paycheck right upfront and most people would blow it up even before it gets to their checking account let alone investing. Investing in general outside of norm requires more guts and energy and I don't think people are wired into thinking from that perspective. Agree that Fund Managers and Intermediaries make money off of those but that's just a nature of their business - like @Mike Dymski mentioned there are companies that charge less and it's the employer's responsibility towards their employees to find the best possible combination that benefits them both. Tony Robbins` Unshakeable is a good read on all aspects of how even a small investor if started early can amass a good amount of wealth and touches on advantages of investing through employer sponsored plans. my 2 cents
Rental Property Investor · Cinnaminson, NJ · Member since 2018 · 53 posts · 32 votes
8y
Originally posted by :
“Please realize this that not everyone is born with Entrepreneurial bone like many here on BP. For those who can't, I believe 401k is the best option by far otherwise uncle Sam takes a big bite out of your paycheck right upfront”
Uncle Sam take a bigger chunk based on your income at the end. Figure 25% of the total amount. That’s one heck of a penalty. I’d take the match in a Roth, if available,and dump the rest into Real Estate.
Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
8y
@Shiloh Lundahl I am tempted to agree with Ted Benna's point (as much as it pains me) especially because most employers offer awful 401k fund options. Usually, they are high-fee and have a ton of hidden fees attached with them. I lay the fault on the misguided HR departments.
But @Mike Dymski mentioned the big reason why I still contribute to my 401K. Free money is free money. I'd much rather the government take 25% of the accrued free money than the alternative.
The 401k is a Godsend in America where the average person can't or won't save any appreciable amount for retirement.
Without getting too political, every single penny saved matters. Social security and other entitlement programs are bankrupt. I doubt by the time we retire they would even be solvent.
Plus, most above-average income earners end up availing both options.
Rental Property Investor · Lanai City, HI · Member since 2018 · 64 posts · 70 votes
8y
I'm doing both, staying diversified and can't pass on the 6% match where I'm at. This has been the order of my finances: 1) Payoff any short term high interest debt (above 5% for me), 2) save 6 months of liquid savings, 3) max 401k, 4) max roth IRA, 5) build long term real estate portfolio, 6) throw any extra into low cost Vanguard Fund (VTSAX for me)... I'm on step 5 and a little of step 6. If the stock market ever goes to zero like some doomsday people dream of, guns, ammo, water, and food are going to be important, not money.
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
8y
Blow it up, and then what? America is already horrendous at putting away any money for retirement, even when it means auto payments from their paycheck and company matching. There are definitely vehicles out there with very low maintenance fees. Vanguard accounts for one. But again, when everybody thinks they need the latest cell phone, cable, and a new vehicle lease every 2 years, how in the world will people ever invest if they aren't doing it with the easiest way of contributing to their 401k?!
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
8y
@Omar Khan Whoa whoa whoa on the world going bankrupt. Social Security is not bankrupt, nor is it going to be. The projections are 30 years in the future, and those projections have it at 79% value. Hardly bankrupt, just not as good as today.
Parsippany, NJ · Member since 2016 · 64 posts · 49 votes
8y
@Shiloh Lundahl
We max out my wifes 401k every year.
Her company does it through fidelity.
There are A LOT of high fee funds as options.
However we put 100% into the LOWEST fee SP500 index fund.
I think if youre a w-2 employee, its silly not to max out the 401k. Just gotta know where the moneys being invested.
I also want to say we dont stop our traditional investing there. We also max out our roths, my sep, and our HSA.
Think those tax deferred investments in the regular market are an important part of a balanced portfolio. As long as you arent paying ridic high fees.
Investor · Dublin, CA · Member since 2016 · 344 posts · 228 votes
8y
@Shiloh Lundahl o agree with Benna because of couple of points:
1) investing in 401K assumes that one will have less income when they retire. Why would someone want to retire poor? Goal should be to have similar or more income when you retire.
2) I think ffhere are handful businesses which match 100% of 401K contribution. I have worked for 3 big IT corporations and at max hey matched first 6% of my contributions.
Of course, I am have my own business now and I don’t invest in 401K or IRA anymore even though I can self direct.
San Francisco, CA · Member since 2014 · 345 posts · 281 votes
8y
Look at Stock and Bond returns over the past 10 years and ask yourself if having an equity portfolio would have been a bad outcome? Way less work than real estate.
San Francisco, CA · Member since 2014 · 345 posts · 281 votes
8y
"What has transpired within the many areas of the "Wall Street" financial services industry, in general, and company 401(k)s, in particular - is an incredible travesty." Baloney. 401K's invested in Wall Street assets are the greatest means of wealth accumulation for the vast majority of Americans who become millionaires. Of bad things that happen on Wall Street, 401K's are not the right place to look. Anyone telling you otherwise has an agenda.
For anyone who is unsure, I can guarantee that a self-directed 401K/IRA plan used to purchase real estate assets, coordinated by a guy like @Bernard Reisz will have management fees and costs vastly higher on a % of assets basis than any 401K plan investing in securities. No offense, Bernard, and if you think I am incorrect, please give me an example of your most fee-efficient customer who has the lowest total fees as a percentage of assets invested.
The level of scrutiny applied to public security 401K's make them, as an investment vehicle, far safer for the average investor than any self-directed boilerplate scheme you will find touted here on BP.
There are no asset-based fees, whatsoever. There is a single very cost-effective set-up fee and a very low annual maintenance fee. The forum is not the place for posting actual dollar amounts, but I assure you that it is very reasonable. You're welcome to PM me.
We do not manage investments and we do not custody assets. That is contrary to the concept that we make available - which is to give investors the ability to direct their tax advantaged funds towards the assets of their choice with the maximum flexibility and the lowest cost.
If you'd like to view it a "percentage of assets," it can be said that the range is from 0.02 to 0.0001. As it's a flat dollar amount, it just depends on the amount of assets being utilized.
San Francisco, CA · Member since 2014 · 345 posts · 281 votes
8y
Okay @Bernard Reisz. Why don't you publish your fees on your web site? As a fee .02 means 2%. Very expensive actively-managed funds average 1%. On top of that, the requirements of self-directed tax advantaged accounts require that holders remain passive, not active participants. So if I buy a cash-flowing property with my SD401K I should have a property manager and hire out all of the work performed on the asset. Property management can vary from 4-7% of revenue, so again, to do it right, I will pay way more in fees with an SDIRA than I would with a Wall Street 401K of stocks and funds. Unless one is willing to play in gray areas of taxation treatment, I find the notion of buying cash-flowing real estate with any SD retirement money to be a very expensive proposition.
San Francisco, CA · Member since 2014 · 345 posts · 281 votes
8y
My opinion, by the way, is informed by having had a Self Directed 401K. My provider sent me a boilerplate form, had me sign reams of liability releases, and then billed my for a little under per year for the privilege of having received the forms they sent me. I just checked their web site and now they charge $1000 for setup and $200 for annual maintenance fees. This was the provider I used. https://www.sensefinancial.com/solo401k/solo-401k-...
You'll get billed annually and beyond the initial set-up, they really won't add any value to your business. It's your self directed money after all. They will just continue to clip you for a maintenance fee. Stick with one of the big brokerage houses if you want efficiency. I cancelled my SD 401K and I am in the process of cancelling another expensive SDIRA/Checkbook LLC I have.
If you have magical access to cash flowing passive real estate where you do not actively participate and can get over the extra fee hurdles these Self-Directed plans impose, god bless you. There is no free lunch.
CPA delivering RE Tax Tools: 1031 Exchange, SDIRA, 401(k), Cost Seg · New York City, NY · Member since 2017 · 581 posts · 563 votes
8y
@Tom V. The fees are on the website - you just have to open the application and it's at the very top. Again, I can't post links and you're welcome to PM me for the numbers so that you can do your own analysis.
The real estate management fees are a red herring, for multiple reasons:
Every business has management fees: When an investor puts money into stock-market equities, the companies into which he/she has invested have operating expenses. What are those operating expenses in dollar amounts? As a percentage of revenues? What is the "operating ratio?" It will be far higher than any real estate management fee.Mutual fund loads and financial advisor fees are stacked on top of company operating expenses. When investing in real estate - in any of its forms: buy-and-hold, real estate secured debt, etc. - it is expected that there will be operating expenses, as well. In the grand scheme, they will be far lower than the operating ratios of any stock market company.
It's what you keep that matters: To focus on any particular component of an investment strategy results in missing the big picture. The fees for the structures we implement are much lower - but that's not what counts. What does count is "After all expenses, including taxes, where will you perform best?". If you determine that to be the stock market, by all means put all your funds there. If you determine otherwise, put your money elsewhere.
Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
8y
I think it does make sense to put in the amount the employer will match at least . I did this for years at a previous job , it was actually a 403(b) which is similar to a 401(k) but for non profits .
I do think the idea that your 401k is all one needs for retirement is risky. Would be nice if employers promoted self directed options but of course the Human Resources departments are in bed with the financial institutions that sell funds .
It would be cool to see employees getting together and funding local projects something similar to syndication or crowdfunding . Instead of dumping all the money in Wall Street funds maybe they buy property nearby and do a value add and improve it.
Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
8y
@Tom V. you are comparing apples and oranges. Bernard is providing a personalized service at low volume, so you can’t compare the fee structure of his nitch to the mutual fund managers automated processes of 401k investments and their fees .
While I believe in the 401k, Ted Benna brings up a very important problem Most people never consider. This is the rising "management fees" the mutual fund managers have been increasing over the years which are completely obfuscated as virtually no one gets into the details of how their 401k fees are really paid out by their employers fund managers, or public employee unions. This has allowed clowns like Tom Steyr to make billions not by his financial wisdom but by being well connected to public employee unions 401k funds. This is also true for those marginally performing managers who control the multibillion dollar Harvard and Yale endowment funds. This isn't a price competitive marketplace, rather fees are dictated by who knows whom and often who gives the best kickbacks. All these fees lower the ROI of people's 401k's but they are too separated from the problem to realize they are getting cheated