401K Epiphany?

[Justin Trudell]

I think I might be blowing my own mind right now..."conventional" wisdom says max out your 401k contribution to lower your tax burden. 2013 was a good year for my 401k balance as the stock market was red hot (i have a 90% stock ratio because i'm still young), so I saw good returns on my investment. The more I'm reading about real estate investing, the more I'm thinking about reducing my 401k contributions to meet my employer match (reducing completely seems to be leaving money on the table) and diverting those funds to buy rental properties. If I can continue to get financing at 4-5% and see realistic returns of 12-15% cash on cash, I'm still getting a decent return and I'm still reducing my taxable income with the mortgage interest being a solid deduction.

It seems like this is a solid plan while I can still get conventional financing with only 20-30% down. May have to reconsider after the bank financing dries up.

Has anyone else been through this mental loop and come to the same or different conclusions?

[Michael Seeker]

I always went at the 401k as get the maximum match, but don't add any more. afterall, I'm in my 20's - why give any more money to some rich asset manager for them to enjoy for the next 40 years?

My epiphany came when I found out I could borrow out of my 401k. I've used 401k loans on several deals and have paid almost all of them back (automatically comes out of paycheck). I now have a nice "cushion" in there. If I have an emergency, I'll request a check from them instead of going to the bank for a high interest signature loan or dumping stuff onto a credit card.

The rules on my 401k loans are max of 50% of total balance and no more than $50K total.

Plenty of people will tell you this is a dumb approach, but I couldn't care less what kind of taxable "golden egg" is waiting for me at 65 if I'm generating plenty of passive income for the rest of my life on rental properties.

I just decided to throw out the conventional idea of retirement altogether (which is why a lot of people invest in real estate). I'll be "retired" in a couple years when my real estate income surpasses my corporate income :)