As an investor planning for retirement, choosing between real estate and 401k is an important decision that impacts long term returns and tax efficiency. With the growth of online discussions on Reddit and forums, many investors debate intensely over which option has higher returns or better tax benefits. This article aims to objectively compare investing in real estate against maxing out 401k contributions across fidelity, returns, taxes and other factors.
Real estate leverage magnifies returns but has higher risks
Unlike 401k which only allows you to invest your contributions, real estate benefits from leverage through mortgages that magnify returns. However, property values can be volatile and carrying costs like taxes and repairs can significantly impact profits. Proper tenant and property selection is key to managing risks.
Maxing out 401k gives guaranteed tax savings under current laws
By contributing up to $20,500 per year into 401k, investors can shield income from taxes today while investing for the future. While tax policies may change over decades, maxing 401k guarantees tax savings now. However, returns depend completely on asset allocation and carry sequence of return risks in retirement.
Combining both real estate and maxing 401k diversifies risks
As the saying goes, don’t put all eggs in one basket. Investing in both real estate and maxing out 401k offers diversification across asset classes while taking advantage of leverage from real estate and tax benefits of 401k. REITs can also allow exposure to real estate returns in 401k accounts.
In the debate between investing in real estate versus maxing out 401k on fidelity and taxes on Reddit, both options have pros and cons across returns, risks and taxes. By taking a combined approach, investors can balance these factors and potentially achieve better long term results.