Assuming your company doesn't have 401(k) match, is it really a good idea to put money in 401(k)? Everyone says it's a good idea but I don't think so.

Why not save your money and buy a house/apartment instead (can rent it out for extra money)?

Some people even suggest to max out your 401(k), which is insane to me. I feel like ANY investment is better than dumping it in 401(k) in the long run (eg: dump into S&P 500)

  • 1
    Dumping it into a 401(k) vs. dumping into S&P 500 is not mutually exclusive, unless you have a particularly poor set of investment options in your 401(k)...
    – PGnome
    Commented Feb 5, 2018 at 15:35

2 Answers 2


It's almost always still a good idea as the tax benefits are substantial. 401k contributions are tax deferred as is the growth. In general for every dollar contributed, your tax liability for the contribution is decreased by your marginal tax rate. For example, if you contribute(d) $10000 for 2017 and are firmly in the 25% bracket, you'll save $2500 off your 2017 tax bill. You'll still have to pay taxes when you make withdrawals (hopefully in retirement), but usually you'll pay less tax at this time because withdrawals happen at your effective (average) tax rate.

Of course, if you want to buy a house or apartment, you should save for this as well, but probably in an account separate from your 401k.

  • The way I see it is you're only saving on the tax difference. I feel like I can make more in the long run by investing in a house and your money is more flexible that way. Am I missing something?
    – Vic
    Commented Feb 4, 2018 at 18:00
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    @Vic: I think you're missing the risk associated with rentals. What if you can't find a tenant willing to pay your target rent? What if a tenant trashes the property and either skips the country or simply doesn't have enough assets to pay for the damage?
    – Ben Voigt
    Commented Feb 4, 2018 at 19:18
  • 3
    @Vic unless your marginal tax rate is less than the rate of return on your rental then you're better off taking the tax break. Even if they're the same, the risk associated with rentals makes it a risky proposition.
    – D Stanley
    Commented Feb 4, 2018 at 20:33
  • 2
    My 401(k) never telephones at 3:30am to tell me that the water heater has burst and there is 3" of water in the basement.
    – chili555
    Commented Feb 5, 2018 at 14:26

If you buy a house to rent out, you are buying it with post-tax dollars and you are paying tax on the rental income it generates. Being a landlord can be more work and less profitable than some people anticipate. That said, for the next 8 years under the new tax law landlords will get to deduct 20% of their rental income making the overall tax picture pretty agreeable.

A 401k is tax-advantaged as it is funded with pre-tax dollars, you'll pay income tax on distributions but you're saving at your marginal rate on the front-end and paying your future effective rate on the back-end. If there is no match, people typically prioritize IRA contributions over 401k, but the limit on IRA contributions is so low that you'd also want to put some toward the 401k. Your 401k/IRA are relatively hands off investing, and there are penalties for withdrawing early. With an employer match it's a very easy decision, without a match it's still a good idea.

Personally, I like both, I am a landlord and I contribute to my 401k. I only contributed up to my employer's match amount for a few years while I focused on paying off debts and buying property, now I've shifted to contributing more to the 401k. Investment strategy should change over time. I think of it as a way to diversify.

Just be comfortable with the risks and potential time/money commitments associated with real estate investing. The risks associated with either are hard to peg, so picking one over the other is not easy. If you like the idea of being hands-on and actively managing a rental, it might be the better option. If, however, you think you'd ultimately just pay others to do everything associated with the rental then it might be much less lucrative than dumping money in your tax-advantaged retirement accounts (even if you do it all yourself it could be much less lucrative than your retirement accounts).

  • Even if I pay others to do everything (for the rental), that will still generate more money than 401k in the long run, no?
    – Vic
    Commented Feb 4, 2018 at 18:04
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    @Vic Potentially, but you could also do much worse with a rental property even if you do everything yourself. It's uncertain, annual rent as a percentage of purchase price varies wildly by region, bad tenants, poor luck, declining housing market could all hurt you. Your retirement account investments are somewhat shielded from local declines, if your area is heavily supported by one industry or one company, a rental could be a terrible investment if that industry/company suffers. I'm obviously counting on real-estate investments performing well, but it's certainly not guaranteed.
    – Hart CO
    Commented Feb 4, 2018 at 20:13

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