Traditional 401k, Roth IRA, or neither?

[Spencer R.]

Hi everyone,

Just as a quick backdrop: I am a 23 year old working a full time office job and contributing 8% (4% traditional, 4% Roth) to my 401k, and getting 4% matched by my company.

What I am wondering is if I should be contributing to my 401k when I am trying to build up as much capital as I possibly can to be able to buy my first rental property ASAP.  I appreciate the tax advantages of 401k's, but I feel as though it doesn't make sense for my goals.  I want to get into properties as soon as possible (1st property in next 1-2 years), and switch from my office job to rental properties in my mid 30s.  

If all goes as planned based on the power of compounding with rental properties, the 401k and Roth IRA that I'm building up now, wouldn't be of much value to me by the time I'm 65 because my rental properties should be cash flowing enough for me. So all that my 8% of contributions are doing right now are delaying the capital I need to get going with purchasing my first rental properties.

So I was wondering.. what do you all recommend.. should I just stick with a traditional IRA, should I do a Roth IRA because I can withdraw contributions at no penalty to put into rental properties at some point down the road, or should I not contribute to any kind of IRA?

Thank you everyone in advance for the insight!

[Joshua Hilliard]

First of all let me commend you on already making these kind of plans and asking these kind of questions. Good for you. My suggestion is you are already investing and receiving an employee match. Don't stop. That's your bird in the hand. You don't know how your real estate career is going to look in a few years. Best case scenario you blow up in real estate and your retirement account is just a little pocket change. Worst case, the rentals fall apart and and the retirement account is a nice little parachute you'll be glad you have. Invest in your retirement account and forget about it. Learn to live without it. Do your real estate with the assurance that you have multiple retirement strategies. An example would be for me. I have a Roth IRA that I haven't touched for 20+ years. Today I'm already drawing a great pension from the military and I'm looking for my second rental. I no longer need my Roth IRA. But it's grown to a nice little chunk of money so I just started looking at it again and thinking is there a better use of that fund. I found Note investing through a self directed IRA. Now I'm doing rentals, notes, and have a pension... oh and did I mention that I work full-time. Anyway, the direction that maybe the most lucrative of all of them might just come from the notes that I'm able to buy from putting money away every month into an IRA. Bottom line is give yourself as many options as possible and don't go all in until you have a firm foundation so if you fall, you won't fall too far. Good luck in your investing!!!