I’m still in my early 20s, and was wondering if it makes sense right now to put less towards 401k and save more for a house, given that I live in Seattle and the price of homes are outrageous. I want to buy a house one day, and prices are only going to go up. Or should I just max my 401k? I see a lot of people saying to max out 401k but don’t understand why I would want to lock up my money when I’m too old to enjoy it Base Salary: $103,000 TC: $115,000
Max the 401k all day. Rent. Only buy a house if you can earn income from it (ie: a rental property). Putting a huge chunk of money down on a house is a terrible investment; it becomes equity that just sits there and does nothing for you.
U good fam? when was buying real estate in a hot area that is only getting hotter a bad idea?
in 2007
It’s a great idea If you’re earning income from that real estate. If you’re buying it with hopes that the value keeps going up so that you can one day sell it for a profit is the wrong way to look at it. That increased ‘value’ doesn’t provide you with anything until you sell.
I don’t mind earning rental income from it. But I also want to live there eventually
Exactly. Houses provide a place to live, enjoy life, and raise a family. Value can take many forms; it’s not always measured in $$.
Save for a target down payment for your needs but invest that in index funds until you're ready to buy. Pretend that the home won't appreciate in value. Second priority: put aside as much as possible to (after tax) Roth 401k beyond the minimum to get the company match.
I only get company match on pre-tax 401k
They probably match it in pre-tax funds,even if you contribute only after-tax. Clarify that with your benefits department.
At least max company 401k match. Definitely max Roth IRA. You can withdraw principle that has seasoned for 5 years AND there is an exception for a first-time home purchase. It's not a huge boon, but it will allow you to make a decision in a few years whether or not you want to keep it there or move it into a house
I’m definitely doing match, that’s the easiest part of the decision. And I’m doing a max to my Roth IRA right now. I’m just debating putting more than 15% into retirement or saving more towards a house
You can withdraw contributions from a Roth IRA at any time. Only the earnings require 5 years of having the account open (and either (i) you are age 59.5+, or (ii) the distributed earnings are used for a first-time home purchase - up to $10k, or (iii) you become disabled, or (iv) you die and a beneficiary is making the withdrawal). At any time, you may withdraw contributions from your Roth IRA both tax- and penalty-free, regardless of age or how long it has been in the account.
Also, I’m not even sure if I could even afford a house here? At 100k using the 3-4x rule, the most I could afford is around $400,000.
Yes. But also you’d be surprised at what people are willing to lend you for a home
Always house first. Down payment ready, and then feel free to invest
In some plans you can take a loan against your 401k to for a house
So at my income, can I afford to max Roth IRA, max 401k, and save for home?
That is entirely dependent on your lifestyle, needs, goals, and discipline.
Do you do it?
Focus on income and save. At some point your income will catch up with real estate then you may buy a house
take 401k to employer match and throw the rest into short term CD’s or just a HISA Also your phrase “why would I want to lock up my money when I’m too old to enjoy it” is a really bad way of thinking. This way of thinking is literally the reason why 90% of Americans are broke
Traditional retirement age is the wrong way of thinking. Acquiring cash flowing assets while you’re young allows you to build wealth and financial freedom so you don’t have to wait so dang long to ‘finally retire’. People with income producing assets (rental properties, etc) don’t need to ‘retire’.
401k employer match is literally free money....