Oakland, CA · Member since 2020 · 16 posts · 1 vote
Hello everyone! Amidst these uncertain times I’m assessing my savings and investment plan and strategy.
I joined the workforce almost two years ago at a company that does 401k matching 50¢ to every $1 up to the federal limit. Putting 20% of my paycheck, I’m able to max my 401k and get an additional ~$9,500 from my company with their match.
However, I also want to save enough for a down payment to buy my first property as soon as possible. I could save a lot more if I wasn’t contributing as much to my 401k. Yet my company’s match is basically free investment money (equivalent to ~10% of my salary) that’s hard to give up.
What would you suggest I do? Keep my contributions or allocate more to liquid cash for real estate investment?
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
@Sienna Parker with the market down right now, it is arguably a good time to invest. In your case, you are getting an instant 50% return on your investment. To put that in perspective, the market would need to drop 34% from investing value before you lose money. I don't see that happening based on how far it has already dropped. The match is guaranteed instant return.
I know everyone gets scared of the stock market when it is down, but that the opposite of when they should be scared. Be scared when it reaches new highs. Invest when it reaches new lows.
New to Real Estate · Boynton Beach, FL · Member since 2018 · 59 posts · 31 votes
6y
@Sienna Parker - wow, that is an incredible match from your employer.
In my opinion, I would aim to max out your 401k each year. Because you're right...if you don't max out the 401k, you're losing out on free money.
I would look to increase your income, which would allow you to max out your 401k earlier in the year and start saving for an investment property. Consider asking for a raise or looking into side hustles.
Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
6y
Your best option is to max out your 401k match from your employer. By getting your 50% match, you're getting a 50% return on that money. Unless you can find an investment property paying that kind return, keep utilizing your employer's match. Save any extra for a downpayment.
Hi @Sienna Parker! Great question/thread. Sounds like an awesome company to be working for. I would agree with what has already been posted, those are great returns! Where are you looking at investing?
Investor · Fort Myers, FL · Member since 2015 · 292 posts · 278 votes
6y
Times like these are great reminders of the importance of diversification. 401k contributions to the match are always wise. I have been able to access those funds in a self directed IRA and a Solo 401k loan in the past to take advantage of good REI opportunites. These are all short term investments, but right now it has saved me from the serious stock market decline. Good luck with your investing.
Oakland, CA · Member since 2020 · 16 posts · 1 vote
6y
Thanks for advice @Kelsey Tanner! I'm either looking to do a house hack in my local area (Oakland, CA) or SFR rental in Philadelphia with my sister. Where are you currently investing?
Investor · Fort Myers, FL · Member since 2015 · 292 posts · 278 votes
6y
@Sienna Parker two separate strategies. 2 years ago I moved a portion of my employer sponsored 401k to a self directed IRA and invested the funds in several flips with my business partner @Cliff Terry. Then I moved this year another potion to a Solo401k which allows a loan up to 50% of the value or a max 50k. I then bought a condo with the funds to flip or rent. Bottom line: if someone (your employer) wants to give you free money... Take it. There are creative ways to safely access retirment funds at a later date.
Investor · Fort Myers, FL · Member since 2015 · 292 posts · 278 votes
6y
@Avi Garg@Sienna Parker be careful with employer sponsered retirement plan loans. If you loose your job or changed jobs it has to be repaid immediately or it will be treated as a withdrawl and subject to federal and state taxes and a 10% penatly. Disclaimer: I am not an accountant and this is just what I have learned over the past three years and how it applies to my situation.
Rental Property Investor · Concord, CA · Member since 2016 · 499 posts · 219 votes
6y
@Mike Terry
It is not 100% correct. Yes you have to read the plan docs carefully. My plan allowed to keep the loan even after I changed jobs (the loan is still active with 1 more year to go).
@Sienna Parker we have two rentals in Northern California (near Davis and my hometown of Murphys), but we are looking at a deal in Southern California and we would like to make a move near San Francisco soon since my husband Spends a few days a week there for work.
Real Estate Broker · San Francisco, CA · Member since 2016 · 76 posts · 50 votes
6y
@Sienna Parker my suggestion is to model it out and see what would put you in a better position short, mid and long term and base your decision off that. Then it comes down to the opportunity cost of doing one versus the other even with the employer match. Of course, you need decent but basic math analysis skills to do this. Good luck.
Rental Property Investor · Ambler, PA · Member since 2015 · 2k+ posts · 1k+ votes
6y
@Sienna Parker, similiarly to what @Mike Terry shared, self-directing your 401(k) is an option. A self-directed account is typically an IRA, Roth IRA or 401(k) account that allows you to invest in things you know and understand such as real estate. All income flows back to the account.
If you are still working for the company and wanted to self-direct your retirement funds, you can check with your employer to see if your plan allows for an "in-plan rollover". If you are able to do a rollover, you can move those funds into a retirement account with a similar tax status as your retirement funds (pre or post tax). While this rollover is not a taxable event, it is reportable. If you have any additional questions on this, let's connect and I can help answer them.
Rental Property Investor · Enterprise, AL · Member since 2019 · 137 posts · 85 votes
6y
@Sienna Parker
Look up Damion Lupo and the eQRP, then talk with him about your options. You can use the money you’ve already saved in your 401K to buy real estate. Good luck!
Sunnyvale , CA · Member since 2017 · 373 posts · 362 votes
6y
@Sienna Parker
1) Invest in yourself (gaining skills, broadening your network etc) such that you can take on more responsibilities and double and triple your pay over X years
2) I personally love retirement accounts and you have a terrific company match. I would only max that account and keep that going. No exceptions to that.
3) Make a solid budget that cuts our wasteful spending. That should be a contributor to your home CB down payment
4) Buy a home when the time is right. You may be more ready than you think.
Real Estate Consultant · USA · Member since 2020 · 11 posts · 7 votes
6y
Dont' waste your money in 401K. Instead open a Index Life Insurance policy...it grows money tax free and no penalties. Unlike the 401K or any traditional roth IRA. You should do your research; especially in this economy.
Real Estate Consultant · USA · Member since 2020 · 11 posts · 7 votes
6y
Dont' waste your money in 401K. Instead open a Index Life Insurance policy...it grows money tax free and no penalties. Unlike the 401K or any traditional roth IRA. You should do your research; especially in this economy.
Rental Property Investor · Newport Beach, CA · Member since 2017 · 218 posts · 138 votes
6y
@Sienna Parker That's an insane match. What industry are you in?
Ask HR about taking a loan from the 401k to buy a residence. It's probably allowed and likely to be a substantial amount, since they're so nice on the match.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
@Sienna Parker with the market down right now, it is arguably a good time to invest. In your case, you are getting an instant 50% return on your investment. To put that in perspective, the market would need to drop 34% from investing value before you lose money. I don't see that happening based on how far it has already dropped. The match is guaranteed instant return.
I know everyone gets scared of the stock market when it is down, but that the opposite of when they should be scared. Be scared when it reaches new highs. Invest when it reaches new lows.
1) Invest in yourself (gaining skills, broadening your network etc) such that you can take on more responsibilities and double and triple your pay over X years
2) I personally love retirement accounts and you have a terrific company match. I would only max that account and keep that going. No exceptions to that.
3) Make a solid budget that cuts our wasteful spending. That should be a contributor to your home CB down payment
4) Buy a home when the time is right. You may be more ready than you think.
Exactly what I would recommend. Keep dumping into 401k, right now is the best time you have to do so in years. The market is down, you are buying at a discount, dollar cost averaging even lower as the market drops. When things come back roaring, as they did for the last 10 years since the 2008 crisis, your money can double or triple very quickly. My Vanguard and Fidelity accounts outpace anyone's RE holdings I can promise you that, for the last ten years. Highly recommend Vanguard Bogleheads forum for investment advice, and JL Collins "A Simple path to wealth" as a cheap easy read. He is not necessarily an advocate for buying RE, but his investment style and advice is widely followed (it is the Boglehead way) and easy to understand.
FWIW I am investing heavily in the market right now - my employer's 401k and match, I fully fund my HSA account (google it, commonly used as another 401k type resource), and send weekly automated investments to Vanguard VTSAX in my taxable account (which I could pull anytime to use for RE if I wanted, after paying capital gains tax on it). But as Sam said in #1 - I am able to do all of these AND fund an RE cash fund because I have heavily invested in myself over the years and have a considerable income to be able to fund multiple investment avenues. That truly is the #1 key to long term success and growing your investments and available cash for investing. The more you make, the more you have to spread across multiple strategies. If you want to buy in OAK/CA, you will need serious cash.