{ "media_type": "text", "post_content": "Unpopular opinion- maxing out your 401K is overrated. I would rather have the money for other investments that I can access now ( ie real estate). Thoughts ?", "post_id": "61625bd443eec1003a94ca8c", "reply_count": 34, "vote_count": 15, "bowl_id": "59064a3cb12379001006592c", "bowl_name": "Personal Investment Chatter" }

Unpopular opinion- maxing out your 401K is overrated. I would rather have the money for other investments that I can access now ( ie real estate). Thoughts ?

likesmartfunny
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It depends on your marginal tax rate. For example, I max out my traditional 401k and at 7% annual rate, in 30 years (I am 30 now), my 19.5 today will be worth ~150k. Now, if I were to not max out my 401k, money in hand today will be 12.5k (at marginal tax rate of 35%). For this to be worth 150k in 30 years, my annual returns will need to be 8.6%. If thats the returns you can get in real estate, go for it. P.S. I assumed similar tax rate for both situations at the time of withdrawal for simplicity

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I did not add the employer match. Add it to the 19.5k and the corresponding rate can be determined.

There are strategies you can implement to get money out of your 401K well before retirement and doing it in a tax free manner... Time is the largest thing against you so it's ideal that you begin maxing out as soon as early as possible. Unless, there's a incredible real estate type opportunity you might be missing out, maxing out might be the better choice.

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I would argue that your decision is right for you, and for many they’re not making trade offs or are weighing the decisions differently.

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This 100x. A 401k is a retirement vehicle. Unlike SS you can CHOOSE to invest in it, so why would you? Well not everyone has the time and knowledge to spend individual stock picking and studying the market. Some people are very ok with the 8% average gain over 40 years until retirement and that’s ok.

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The match is free money. Beyond that, there are tax advantages. Lastly, you can do both. Or just one.

likesmart

My 401k is my safety net so the American populous doesn’t have to subsidize my retirement, the rest gets yolo’d.

likefunny

On average, maxing out a 401k is sound financial advice. That doesn’t mean there aren’t exceptions to the rule who might do better in other investments, but it doesn’t invalidate the advice for the bulk of investors.

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Fact- half of America can’t even contribute to a 401k with any substantial amount. Fact- most have little to no savings to invest in real estate or own a personal Home for that matter.

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Wow….really puts things into perspective

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If my company matched I would feel more inclined to max it out, but sadly they don’t. I still contribute to it, but don’t max it out.

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why would you not want the tax break?

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Possible higher returns on other investments. They said

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Maybe this is the millennial in me but how does anyone have enough money in a HCOL city and debt able to max out their 401k? I contribute as high a 8% of my base and still barley get to $7k every year

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Work in tech to be honest. 200k income is standard for folks with more than a couple years experience in any role (with technical making more). 300k income not uncommon.

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Isn't 401k funded pre-tax? But otherwise agree, im also only getting my match and then maxing IRA, the rest is being saved in brokerage accts for a down payment

401k is great when there’s a company match available, and/or when someone needs the tax incentive to get money into the market and working long term. A lot of sophisticated investors will see much higher returns outside of the market.

Facts. I’m making $700k off my first property development. Miss out on maybe 20% gains on the deposit ($40k). Opportunity cost of $640k

PA1, could you share some readings? I’ve been in real estate for multi family and want to read more before I buy

The only counter would be that there is a employer match but you could get that in a different way - say, if you invest in a property that yields rental income - so yes, max-ing out 401k is not the only approach.. whatever works for you..

Agreed. Recently decided to pull back on contributions in order to get down payment faster.

Unpopular opinion - real estate is overrated

I'm in the same boat. I do the minimum to get match and put rest of my income into stocks and housing. For me I have no interest in working till 60 so I invest heavy into assets I can access early on. Every situation is different.

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