Should I Invest In Real Estate Vs. 401K: How To Actually Compare

What is a better investment than a 401k”? The die-hard real estate investors would tout the benefits of rental real estate. In contrast, the stock enthusiasts would prefer the 401(k). Before deciding if it is better to invest in 401(k) or rental property, let us evaluate the pros and cons.

Benefits Of Maxing Out 401K Vs. Rental Property Reduced Taxable Income Besides housing, taxes are the most significant expense for an average household. Tax planning strategies should always be at the forefront of any decisions you make.

Tax-Deferred Growth The contributions in your 401(k) grow in a tax-deferred manner. The earnings on your 401(k) are not taxed till you withdraw.

Both the contributions and earnings are taxed only when you withdraw. You can plan the withdrawal to occur when your income is low such as during retirement. As a result, you can pay lower taxes.

Lower Tax Rate Withdrawal

Low Fees

Funds within the 401(k)s are supposed to have low fees, but some funds charge an egregious amount. To ensure that you are invested in low-cost index funds, set up your free Personal Capital account and connect your 401(k) account.

Hands-free Investment

You don’t need to manage your 401(k). In fact, after selecting your investments and automating the entire process, it is best not to tinker with it. You can better spend the time and mental energy saved on improving your human capital to earn more money.

Diversification Index funds within a 401(k) provide a wide range of diversification across companies, sectors, and even countries.

Asset Protection ERISA accounts such as the 401(k) offer one of the best asset protection benefits. If you file bankruptcy or get sued, it is not easy for your creditors to gain access to the funds in your 401(k).

Liquidity You can sell stocks in your 401(k) at the click of a button. Most of the investments you find in a typical 401(k) are highly liquid and can be converted to cash in less than five days.

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