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Lower 401k Contribution for REI

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MKyz

New Contributor
Aug 20, 2007
9
2
Southern California
I admit it! I was one of those people socking away as much money as possible into my 401k account. I would like to lower that percentage to just get my company match, put the "extra" money from my paycheck into my high yield e-savings account until my first investment property is found.

My September Goals:

* Lower 401k contribution and put the difference into an "investment" account
* Overcome my fear of making my first investment purchase
* Search for first investment property that will produce positive cash flow
 
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andviv

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If you have enough money in your plan and it allows to make loans, then you have an alternative to fund your deals. That's how I bought my first property.

At the time I had only like $7K in my 401(k). Found a property and the bank said they would finance 100% of the loan, but I needed to come up with the 3% for closing. Somebody suggested to make a loan from my 401(K), which I did, took $3,500 and paid the closing costs with that money.
Stop by the HR dept at work and ask about the details of your 401(k) and how the loans work there.

Now, about your fear.... the only suggestion I have is "research". and then when you are done researching, then research a little bit more, so you can overcome your fear by having enough information to make an informed decision.
 

randallg99

Bronze Contributor
Aug 9, 2007
1,373
177
NJ
>>I was one of those people socking away as much money as possible into my 401k account<<

this is honestly not a crime and I would not advise against or for this idea but studies have shown that you can create a significant retirement basket if you stash away as much as possible in your 20s. This may or may not be the forum to advocate a nest egg, but reality is that any savings is crucial to success and IMO, a tax deferred savings with employer match is extremely conducive to long term savings.

unless you are entrepreneurial with a game plan already in place, I would suggest against lowering your contributions and instead heed to andviv`s advice above and simply borrow against the 401k if you need to fund an investment property... but be smart about buying the property and make sure it flows GOOD so you can pay the 401k back!
 

Diane Kennedy

Bronze Contributor
Aug 31, 2007
780
210
I admit it! I was one of those people socking away as much money as possible into my 401k account. I would like to lower that percentage to just get my company match, put the "extra" money from my paycheck into my high yield e-savings account until my first investment property is found.

Loading up a 401(k) isn't necessarily a bad idea, especially if you have a plan to quit your job in the near future and replace the income with a business or active real estate business. The reason is that as soon as you leave, you'll be able to roll the 401(k) into self-directed funds and you can use that to buy real estate. ALSO in 2010, there is a one year only window to roll tax-deferred pensions (SEP, IRA, Solo 401(k), etc) into Roths. Up until now, you couldn't do this unless you made less than $100K per year. Look for a lot of people rolling funds that year.

I do have a concern about borrowing the money from your 401(k) to invest. If you leave or are terminated for any reason, you have to pay that money back. If you don't pay it back, then it is considered an early distribution and is subject to tax AND penalties.
 
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Russ H

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Jul 25, 2007
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in 2010, there is a one year only window to roll tax-deferred pensions (SEP, IRA, Solo 401(k), etc) into Roths. Up until now, you couldn't do this unless you made less than $100K per year. Look for a lot of people rolling funds that year.

Hi Diane,

This sounds too good to be true.

It's my understanding that currently I could convert IRAs etc into Roths, but I have to pay tax on them.

Are you saying that in 2010, there would be no tax penalty-- that I literally could go to a Roth and then (when I retired), draw all the money out, TAX FREE? For ALL of my IRAs? (even the self directed ones?)

Tell me I'm dreaming! (it's OK, I can handle it :) )

-Russ H.
 

Diane Kennedy

Bronze Contributor
Aug 31, 2007
780
210
Hey Russ -

Well, when you convert tax-deferred to tax-free you still have to pay tax, but with no penalties. Plus, there is talk that you'll be able to spread the payment over a couple of years for the tax you pay. So you're not skipping out on the tax.

The real big thing is that a lot of people haven't been able to set up Roths or roll into them because their income (usually W-2) was too high. That issue goes away.
 

Diane Kennedy

Bronze Contributor
Aug 31, 2007
780
210
More on the self-directed plans -

You can invest in real estate.
You can borrow to buy real estate through your self-directed plan (figure 30% down payment, though)
You can flip in your self-directed plan.
And, my new favorite, you can use your self-directed plan to invest in start-up businesses and/or Intellectual Property.

So....let's say you create a website that you don't program (hire others to do), pay for the initial start up with your self-directed plan then all the income will flow to your pension plan. If you do that with your Roth, then it builds TAX FREE and you can start pulling it out at 59 1/2 without tax or penalty. Do it right and you have the best kind of annuity set up.
 
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venom

New Contributor
Aug 6, 2007
67
7
Hi Diane
Its great to have you here !
My understanding is the law was changing. That its not a one time deal . Did I read this wrong ?
Russ
You have to pay the taxes from money other than the money in the 401k otherwise thats a distribution
I was able to pay the money that I owe my 401k monthly after my job left me. They take it automatically from the checking account.
Rob
Aka spidey
 

andviv

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And here I was wondering why spidey hadn't joined us here!!!
Yes, the party is complete!!!

Rob, about the repayment, I think it depends on the plan. Some of them give you a short period of time to pay them back (30 days) while others let you pay back in monthly payments. Also, some keep investing the money that you borrow, while others just reduce your balance (I know this as the company switched plans and my first loan was not reduced from the investment amount, while the second plan reduced it). I hope bflbob can give us more information as he manages the 401(K) for the company he works for.
 
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Cat Man Du

Contributor
Jul 30, 2007
599
51
WoW ! Diane I have your 20% COCR from RDPD on my desktop. I review it ever so often to remind myself to stay focused. Now this site is complete !!! And Spidey too.
 

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