I am looking for some advice based on what others in the community have done with their 401K’s. My first investment ever made was my 401K. At one point my wife and I were putting 15% into our 401K’s. The more I learned about personal finance and investing the more I knew how important this account was and continued to focus on growing my contributions. That was before I got into real estate. I now see real estate as my way to retirement. My strategy best aligns with the small and mighty real estate investors. My portfolio is currently 4 properties 6 doors. My ultimate goal is to generate $11K per month in passive income and I believe I can do that by purchasing 3 more single family homes in my area and paying off the entire portfolio. Based on our current income levels I should be able to accomplish this goal in the next 10 years and I am 39 now.

My question to the group is what to do with my 401K. To increase my capital for investing I have already scaled our 401K contributions back to 6% to take advantage of the company match and aren’t doing any more than that. We have also started using our 401K’s to take loans out to purchase properties. I have decided that I would rather borrow from myself and pay myself back interest vs. the bank. The next step I am considering is stopping contributing all together and putting that capital into our real estate investments. This would give us about an extra $14K a year today to invest and as our income grows so will that number. Today we invest 100% into Roth contributions so there is no tax benefits to diverting the funds I would just be giving up the $7K a year employer match. Today my wife and I have around $500K in our accounts combined. By my calculations and I, correct me if I am wrong, but if those accounts grow by 7% per year on average and we stop contributing that $500K will turn into about $1.9M in 20 years when I can start pulling it out. If our rental portfolio is already sustaining our living, why do I even need that extra $1.9M. Even if it’s only $1M I think I would be okay in stopping our contributions. Am I missing something?

Paul Novak

Madison, Wisconsin

2 Votes