Should I Decrease Contribution to Employer 401k/Roth IRA

2 Replies

Good morning everyone! I am in the beginning stages of real estate investing. I have continued to further my education on different aspects of real estate over the past few months and plan on continuing to do so. I have also recently begun getting rid of unnecessary debt obligations in an attempt to decrease my monthly expenses in order to save more capital for REI.

Being a finance graduate I understand the importance and "Magic" of compound interest therefore originally began contributing 15% of my income to an employer held 401k and Roth IRA. The company I work for matches around 43% for the quarter. After further research I have found that there is no limit aside from the $19K 401k limit and $6K Roth IRA limit. Having a bit of an understanding with finance, I understand this is probably a rare case which is why I originally had been contributing 15% of my income to the accounts.

After much contemplation I came to the conclusion that I preferred access to my own money and the ability to invest as I see fit. Moreover, I could invest that money in real estate and earn income as well as the chance for appreciation (an added bonus in my mind). I have gone back and forth in decreasing my contribution in order to save up more capital for my first rental property. My question is what are your thoughts on decreasing my contribution amount in order to save the Capital necessary to begin my real estate investing career? Or perhaps should I start looking for investors I could partner with to make up for my lack of capital and come up with a creative deal that is a win-win for both sides?

Like Covey says, "Begin with the end in mind." If your goal is to become a real estate investor and you're willing to put in the work that requires, then you should decrease those contributions. The only way this hurts you long term is if you decide down the road you don't like real estate as an investment vehicle. You cannot retroactively contribute to retirement plans so you would lose the ability to shelter money in that way.

An alternative might be to continue to max out an IRA with the intent of eventually rolling it to a self-directed IRA to invest in real estate.

@Joel Johnson you hit it right in the head. I know real estate investing is something that requires work and is a challenge however that’s what I’m looking for. I feel it’s a “safer” bet in the long run considering retirement accounts have only been around for 30 years or so while real estate has been around for hundreds seemingly.

I have also thought about maxing the Roth first while contributing to the 401k like you said with smaller contributions. I appreciate the response Joel.