Add into a 401k or keep that money in your paycheck?

Question

Hi,

I have not bought my first investment property yet, but my goal is to own multiple houses and hopefully purchase a house every year.  I just recently got a new job that gives really good benefits and match my 401k 100%. In any of your experiences is it better to put a certain amount away per week into a 401k or is it just better to keep that money in your paycheck every week? Ideally, I want to retire before age 65 so I am leaning towards not putting any money in, but would love to hear all of your opinions!

Jonathan Styer · Answer

Congrats on the new job! Not a CPA but the usual advice is take the 100% match, it's free money so what you're really asking is should I choose to take a raise? Any additional funds use for investments that are a little more "liquid".

Account Closed · Answer

A house will give you 20% return? The match 100% return, personally I’d take the greatest match possible.

Michelle Paulsen · Answer

@Chris Davidson thank you!! I appreciate this

Chris Davidson · Answer

@Michelle Paulsen Me personally I would always do the amount up to 100% match, and then after that, I would only add until you reach a number you think will be enough to grow at a reasonable rate for when you retire. Some base this on doubling every 7 years. Once I had the number in my 401k I wanted I just did the match and everything else went towards investing and building a bridge account (one to bridge expenses from retirement until you can get 401k type accounts).

Hope that helps. Everyone has a different situation, and situations change so as long as you are doing something about it you are on the right path!

Stephen Brown · Answer

I set money aside because I know if I won't then I'll just hold onto it in my bank account and lose money to inflation. I think it also depends on the price point you're buying at. If you're going to buy a 200,000 property, 100 per week won't add up fast enough for your down payment, but if you were buying a 50,000 like the ones we have here in Toledo, then you could make the argument that you should rack up the downpayment now.

I personally think its smart to save, but it all depends on your timeline. Let me know if I can help :)

Mike Mocek · Answer

Hey @Michelle Paulsen So many helpful suggestions already mentioned.  I agree with Account Closed, whichever has the best return is the one you should go in on.  If the property is in a greatly appreciating area you might be competitive but ultimately, I would sit on the 401K and put as much as I can for at least a year, that way you can double your return, and then start looking at properties.  This should also give the market enough time to stop being so competitive and start a little bit of a healthier return when prices start to come down.  I hope this helps, message me if you have other questions!

Onan Dumas · Answer

@Michelle Paulsen

I’m not a big fan of the 401k. The fees over time eat away at your gains which is something a lot of people don’t understand somehow. This is a long discussion but the simple fact is that there are other better avenues to put your money pre and post tax.

However, any free match must be taken advantage of. It’s free money after all! But I would not put a dime over what is matched. In your case it’s 100%. So that settles that.

For everyone else though, there are better ways to grow your money than a 401k. I’d rather do an IRA such as a Roth or traditional.

Bill Hampton · Answer

Michelle,

I recommend that you speak with a Fee-only Financial Planner that understands real estate investing to discuss your situation.

If your company's 401k matches your contributions, then you should definitely contribute enough to get the match. It's free money.

If your 401k allows loans, then your money is not tied up and you could take a loan for a down payment on a property.

If 401k does not allow loans, you still may want to contribute so you are not putting all your eggs into the real estate investing basket.

Again, I recommend that you speak with a financial advisor that understands and/or invests in real estate.

Good luck and let me know if I can be of assistance.

Nicole Heasley Beitenman · Answer

I have been funneling all my extra cash into my student loans while the interest is at 0%. I don't care about the match; it's like $1,400 a year after full vestment, which is like 5 years and I have no idea if I'll still be there in 5 years. I can make an extra $1,400 a year pretty easily. I don't care about interest rates on other debts or returns or anything like that; I'm sick of throwing away $400+ a month, and I'm not doing it for the next 30 years. I'm fed up with flushing a huge chunk of money down the toilet every month.

If I didn't have student loan debt, I'd contribute only what it takes to get the full match until my 401K hits $100k since you can't borrow more than $50k from it.

Allen Wu · Answer

@Michelle Paulsen

I keep my investment philosophy simple, but feel free to align with your financial advisor for final opinion.

I would max out all tax deferred options first like 401k, Roth IRA, etc. Then, any excess cash, you save and start building your alternative bucket of portfolio like rental properties.

I’m probably not your normal BP user here, and only started dabbling on real estate after tried and true conventional finance folks wisdom was completed (emergency fund, 401k, HSA, Roth IRA etc) were maxed out before I throw money into real estate.

Others here will probably disagree with me though, but the tax deferred growth is what I love most.

Add into a 401k or keep that money in your paycheck?

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