Max Out Roth 401K or Real Estate

7 Replies

I have no debt, nor did I ever. Not a penny. I paid cash for my undergraduate degree. I paid cash for my car. I paid cash for my home. I have no credit card debt. I'll have finished earning my masters, which I paid cash for, in a couple of years. I have an emergency fund of 3 to 6 months. My monthly expenses are around 1000 a month. I have 40 years until I retire if I retire by 65.5. I don't have much saved up for retirement, but I get the maximum of my employer match for my 401K. My question is what is the best thing to do with all of my extra income? I can easily meet the yearly contribution limit of $18,000 a year into my Roth 401k, and live a perfectly happy life for the next 40 years. By the time I meet the catch up age and have a higher contribution limit, I should even be able to meet that. If I continue contributing just enough to get the max employer match contribution, I can easily put away $ 25,000 a year no problem, something not possible if I maxed out my Roth 401K contribution each year at the 18,000 a year. However at $25,000 a year saved I can easily purchase some cheap condo in my area for 50K in cash and rent it out. I could continue this process and continue to purchase cash paid for real estate investments?

Which is a better performer? Buying real estate in cash and renting out, or maxing out your Roth 401k contribution to the yearly limit?

I also have to ask. Theoretically speaking, if you contributing 18,000 a year with an employer match of 5% dollar for dollar and a growth of 7% a year and continue for 40 years and retire by 65.5, a big SUPPOSEDLY, I'd be looking at $ 4,500,000.00 by the time I retire.

What's the point on having more money than I need to retire?

So I have to question, what on Earth would you do with all that money? No really, what would you do? I don't see the need to have more than what you need to live off of, anything more is just a waste. Seriously. If I retire at 65.5 and have 20 odd years to live my life, what on Earth would I do with 4.5 million? Learning from my grandparents, by the time you hit your mid 70s, you struggle walking up the stairs, going to the grocery store is the only time you get of the house and get exercise, it's not safe for you to drive... the quality of life is horrible. No amount of money is going to make me have a good retirement and enjoy my life once I get to that point.

My point being I'd almost rather have "just enough" to retire so that way I have more money while I can "still enjoy" my money. If I have a whole bunch of extra money while I'm still young, I can have the big house, I can have the new car and so forth. If I'm old and it's not safe for me to drive than I can't have the new car. There's no point in buying a new car when I'm older because it's not safe for me to drive it. There's no point in buying a big house when I'm old and retired because I'm to old to maintain it, even something like mowing the lawn seems out of the question...

I know if I had 4.5 million by the time I retire, I can give it to my family. While I'd do that, I'm NOT THE ONE ENJOYING the rewards from all my hard work! Seems like it doesn't benefit me to just "give it all away", I'd at least like to enjoy the fruits of my hard work some what!

@Yoshi M. I am in a similar situation myself. I primarily invested in my savings, IRA, market index funds etc. Real Estate def has potential to earn more than 7% on your return. Some people like the fact hat you have more control over your investing in RE. You also have the option to invest for cash flow to enjoy those returns sooner than you would in retirement.

Think about why you would consider investing in RE.  Are you interested in cash flow, future wealth building, quicker big pay offs?  Then read up and invest accordingly. Buy and holds, appreciation plays, flips, etc.  

Some consider loans on buy and holds "good debt" I tend to agree.  I was like you I had zero debt my whole life, and the thought of having debt scared me to death.   Now I've learned to have someone else pay down my debt.

Also keep in mind RE investing doesn't have to be an ALL IN thing.   You can still do your 401k and RE on the side or vice versa

Congratulations on always having enough money on hand to live comfortably. People in general have a difficult time making the right decisions as you have, that is a real talent. To be able to retire with such an exorbitant amount of money with such little effort is a true blessing. Maybe you can share your talents through philanthropy. Helping people to get passed their money problems, or any other service that you have the true desire to help others with. Remember, nobody ever knows just how long they will live unless they decide to end it on a specified date. One of my grand fathers lived to 60 and the other one is still alive and happy at 98. One grand mother passed at 66 the other at 93. When shall I die? Maybe tomorrow. 

My point is, whatever you decide will be the right decision. If you end up with 5 million at retirement, then think of all of the people that you will be able to help now and all the way through your life. True happiness comes from within and serving others, not the amount of money you have either now or in the future.

As to my opinion as to where to invest your money, it always depends you tax bracket.  I like both the 401k and S.D Roth ira, myself. But make sure that you also have an account to enjoy your life style your entire life. Enjoy the traveling portion of vacations for instance, as it is still part of your vacation.

Best wishes to you and your family and your friends.

Personally (I’m actually doing this as I am in a similar situation as you) I would contribute up to your employers 401k match. That’s a guaranteed 100% return on your money which you will not get anywhere else. Save the reminder for REI

See below regarding taxable vs. non taxable. and while you may think that is not a lot of money, you will have life events and changes occur, whether it be get married and start a family or loss of job etc. Stuff happens when you least expect it so it is better to be prepared. A lot can happen in that time. Look what happened to people in houston who did not have flood insurance? 

@Yoshi M.

I'm not sure which has better return - stock market or RE.  It's been discussed / argued many times in the past and I'm sure it will continue to be a hot topic for years to come.  Regardless, I think it depends on the time period and location so you'll get different answer depending on what people use.

If you're not sure you want to live less than you can so you can save more for the future, perhaps you should start with a budget.  Identify what's "nice" to have and maybe set up goals to treat yourself when you achieve your goals.  

There are pluses and minuses with both ROTH 401K and REI. Do you know your investing personality? Are you risk averse? Do you want to know all the details of your investment?

If anything, contribute enough to get the full company match, and save the rest outside your 401K to buy RE locally and manage them yourself.  Also, make sure you find out what funds your ROTH 401K offers and ask your HR to provide fee info.  Look for simple index funds with low fee and invest for the long run.  I only wish I maxed out and had the ROTH options when I first started.

Good luck deciding.


Employer match is NOT a GUARANTEED 100% return. You COULD lose ALL of it. Although probably not.

@Yoshi M.

The rules also allow for investing your Roth 401k in real estate, and all the gains would grow tax free.

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