I’ve read about how maxing out your 401K ($18,500 a year as of 2018) is a sure way to have a good retirement, but you can not withdraw from the 401K account until you are about 60 years old. If you are maxing out your 401K and have excess cash you can still save/invest, then how would you go about investing that excess cash? Would you focus on building passive income through dividends and real estate or would you invest heavily in growth stocks and small businesses for capital gains? Should you max out your 401K or would you focus on building assets you can use before 60?
The idea of building passive income sounds good but since the cash flows are so predictable (div paying stocks, real estate) it’s hard to find inefficiencies like in growth opportunities. Is it worth it to invest in these predictable cash flows over growth investments if you’re still 30+ years from retirement?
Depends on your situation. Generally speaking, you’ll want to max out your 401k, then your HSA (this is the most overlooked piece), then your IRA. After that, if you still have excess money lying around, invest it.
best move is 401k match, hsa if you hdhp, trad ira, then max out rest of 401k. if no tax deduction in trad ira, do the roth ira.
when you lose your job and no salary. convert 401k to trad ira. then convert 50k/year to roth ira. in 5 years you can withdraw the conversions. your roth contributions you can withdraw anytime. if you have excess cash invest in etf’s in a regular account, so you never have to sell, and you can use as a down payment when prices are cheap.
real estate is good due to leverage, but you should only do it if you can lock cheap rates and prices are low. (prices are not low relative to the rent you can charge). the cash flow net of everything is pretty low. but over time if you raise rents, you’ll feel it. plus you can relever when prices rise. there is a bit of a hassle if there are issues so prop manager it.
investing in a small business sucks. too much of a headache if there are issues , you constantly need to manage shit. I dont but my friend has a headache with it… lots of cash flow issues as well. and unforeseen shit that can literally set you back. you really want enough scale so you can dedicate full time. not a good idea to half ass it.
I contribute to my 401k up to the match and then go up more at the end of the year based on my tax situation. I want access to liquid investments to take risk and not just blindly wait for retirement, so I also invest in regular accounts.
IRA is restricted as well and one thing to note is that many stable dividend payers are industrials which are inherently cyclical so their valuations can see real swings when you might need to draw. Anyhow, I agree in investing in the conventional waterfall, 401K then IRA, etc. BUT THERE’S ONE EXCEPTION. Before you do any of that, you should have 6 months of liquid savings (ie, not in IRA or 401K). The waterfall only really applies after that.
You take out money from the 401k, then repay more money into the 401k, thus creating more money to be borrowed. Very simple, a cat could do it. For detailed reference, refer to the link below. Tanks.