There’s no doubt that the 401(k) retirement plan has been a popular means for Americans to save ahead for future retirement. But the question remains … Is a 401(k) really the best place to invest your money if you’re looking to build long-term wealth? Or, could investing in something else, such as real estate, be a better alternative?
Ultimately, the answer for YOU lies in your specific money and retirement goals. And as with anything related to your income, investments, and retirement, it’s always smart to run your ideas by a certified investment professional. You may also want to work closely with an accountant to ensure you’re maximizing your tax benefits.
In my personal experience, I’ve found that investing in real estate offers some distinct advantages over investing in a 401(k) plan. Today, I’ll walk you through the top 5 benefits I’ve discovered.
5 Reasons Why I Invest in Real Estate vs. a 401(k)
1. Real estate is a tangible asset.
Investing in real estate means you have a piece of property that you can see and touch. The tangible nature of the asset means that you also have more control over it. Not to mention the fact that property values typically don’t fluctuate as wildly as stocks, bonds, and mutual funds.
2. Real estate investments provide monthly cash flow and passive income.
When you invest your money in a 401(k), it’s completely tied up until you reach retirement age. With real estate investments like rental properties, however, you can enjoy positive cash flow month after month, year after year. Not only will this give you a higher income potential TODAY, it’ll also provide another wealth-building avenue for RETIREMENT.
3. You can use someone else’s money to buy an asset that appreciates.
With a 401(k), the government sets limits on how much money you can invest each year. You’re also limited by the amount of income you earn and how much you have left over to invest.
When you invest in real estate, you can leverage someone else’s money (the bank’s) to purchase an asset that appreciates. Typically, property values outperform inflation and can set you up for significant profits down the road.
4. Real estate investing offers distinct tax advantages.
When you have rental income, it’s often taxed at a lower rate than ordinary earned income. This benefit alone can save you a significant amount of money in taxes. Your taxable income is further reduced by being able to deduct things like mortgage expenses as well as property taxes and maintenance costs.
5. Real estate investments offer a hedge against inflation.
Whenever the cost of living significantly increases, property values typically do, too. So do rental rates so you’re able to keep up with or even surpass inflation when you have rental properties.
Learn How to Build Wealth With Real Estate Investing
Are you interested in growing your wealth and achieving financial freedom by investing in real estate? In my Real Estate Masterclass, I share the exact blueprint to follow to start growing your wealth and passive income with real estate. If I can do it, you can too, and I’m excited to show you HOW!
FAQs
A 401(k) account is part of many employer-sponsored retirement plans. They offer immediate tax savings and, sometimes, employer matching of contributions. They also have notable restrictions. Investing in individual stocks offers no comparable tax benefits or employer matches.
Why is a 401k better than investing? ›
A 401(k) account is part of many employer-sponsored retirement plans. They offer immediate tax savings and, sometimes, employer matching of contributions. They also have notable restrictions. Investing in individual stocks offers no comparable tax benefits or employer matches.
What are three benefits of investing in a 401 K )? ›
401(k) Benefits. 401(k)s offer workers a lot of benefits, including tax breaks, employer matches, high contribution limits, contribution potential at an older age, and shelter from creditors.
Is it better to invest in 401k or real estate? ›
If the goal of investing is to retire at the common age of 59 or older with a set amount in savings, a retirement fund may be the best option. On the other hand, if a person is looking to increase their overall wealth to retire early, real estate is the better choice.
What is the biggest advantage of a 401 K account? ›
The main benefit of 401(k) plans is that they allow retirement savings to grow tax-deferred.
Is 401k enough for investing? ›
Since a 401(k) may not be sufficient for your retirement, building in other provisions is essential such as making separate, regular contributions to a traditional or Roth IRA. It's always a good idea to have more options when you reach the "distribution" phase of your life.
What are the benefits of a 401 A? ›
The benefits of participation include:
Reducing your current income taxes while investing for retirement. Flexibility to consolidate savings in another qualified retirement plan or a Traditional IRA if participant changes employers. Earnings accumulate tax-deferred.
Is a 401k a waste of money? ›
Pro: 401(k)s can help you budget for retirement. Con: It can be difficult to access funds early. Pro: You'll save on taxes while working. Con: You might pay higher taxes later.
Why do people not plan for retirement? ›
The key reason for this is that the importance of Retirement Planning is not clearly understood yet. Other reasons have got to do with personal preferences, attitudes, and life situations. The net result is insufficient funds in hand post retirement.
What is better than a 401k? ›
IRAs offer a better investment selection.
If you want the best possible selection of investments, then an IRA – especially at an online brokerage – will offer you the most options. You'll have the full suite of assets on offer at the institution: stocks, bonds, CDs, mutual funds, ETFs and more.
The value of 401(k) plans is based on the concept of dollar-cost averaging, but that's not always a reliable theory. Many 401(k) plans are expensive because of high administrative and record-keeping costs. Nonetheless, 401(k) plans are ultimately worth it for most people, depending on your retirement goals.
Should I invest in a 401k or invest myself? ›
The tax advantages of a 401(k) plan combined with an employer match are a winning combination. “If you invest your retirement directly into stocks instead of a retirement account, you will be subject to taxes on the dividends and capital gains when you sell the stocks.
Is a 401k actually a good investment? ›
While 401(k) plans are a valuable part of retirement planning for most U.S. workers, they're not perfect. The value of 401(k) plans is based on the concept of dollar-cost averaging, but that's not always a reliable theory. Many 401(k) plans are expensive because of high administrative and record-keeping costs.
Is it better to save money or put in 401k? ›
Key takeaways
Prioritize savings if you don't have an emergency fund. Consider investing what you can if you're eligible for a 401(k) match. Choose saving over investing if you'll need the cash in the near future.
What's the point of a 401k? ›
A 401(k) is a retirement savings plan that provides tax advantages to savers. Named after a section of the U.S. Internal Revenue Code, the 401(k) is an employer-provided, defined contribution plan. 1 The employer may match employee contributions; with some plans, the match is mandatory.
