Contribute to 457b (Employer Match) or Save for Downpayment?

Question

I'm a teacher. Every month some of my paycheck goes towards mandatory retirement contributions. I can't opt out of contributing entirely, but I currently contribute to an optional hybrid 457b defined contribution plan. I contribute 4% (the max) and my employer matches at 2.5%. (It's not 1:1 - if I contributed only 2.5%, my employer would contribute 1.75%.) My understanding is that I cannot take out loans against my retirement funds nor can I withdraw from my 457 unless I stop working for this employer. My overall financial goal is to hit Coast FI in the next 10 (preferably 5) years and my main vehicle for that is real estate - hopefully STRs.

In my mind, it seems like contributing my 4% + the 2.5% cash match is better than hanging onto the cash and saving it for a down payment because the actual cash amount is so low (~$2200 from me and ~$1400 from my employer) that it seems like it wouldn't make a huge difference to a real estate deal and it allows me to be diversified. Con is that it's cash gone up front that can now only be touched under a limited set of circumstances.

Am I right in thinking I should keep contributing this 4%, or should I start getting my $220/paycheck back and start socking it away for a deal?

Denver McClure · Answer

@Laleh Omaraie I would agree with @Andrew C., the employer match is $1,400/year of free money. However if you first objective is FI, and you've decided that your vehicle to get you there in though STRs, then I would consider dropping your 4% contribution.

Take that extra $2,200 a year and invest it in a taxable brokerage account, allowing your investments to grow until you are ready to use it for a down payment or renovation. You can also borrow against the account balance using a Margin Loan, which can be very beneficial for real estate investors. I've used this strategy myself on a STR before (check my profile).

Andrew C. · Answer

IANAL, IANACPA. you should probably talk to one.

However, that employeer match is essentially 'free money' - you don't pay tax on it and it's 0 risk. Almost certainly, you should take that.  Also think you're right, and 2k / year isn't going to make much of a dent towards a RE downpayment.   look for another way to boot-strap that's less cash-up-front intensive??