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Hey all, I am new here. however I have been reviewing and listening to the topics for a while. What I am having difficulty on is this: 401K is pre tax dollars. Any investing money after you get paid is money that has been taxed. Shouldn't the best advice be for retirement planning to max out your 401K contributions before thinking on any other long term investing with after tax dollars? Max out means contribute a full $ amount you are allowed per year, which includes you employer contributions.

I started down the path of M1 app and fundriser app. However good they are, its never going to compare to what I can do with my 401k divers portfolio. The 2 apps tend to go down the long term investment strategy as well and I don't see enough value add until I max my 401K. How I see it is Bonus + any side Hussle + any extra cash has value in contributing to additional investing, however if you haven't maxed your 401K funding you shouldn't think about any other long term investing strategies with that money. So saying all this - what about investing any after taxed extra cash into more risky returns and short term investing like stocks or crypto investing with taxed dollars? That seems to be my only option based on this concept I am building.

With this logic I am having a hard time thinking that M1 is a good option. Real estate investments might be considered more near a mid term strategy and could provide some diversity, however don't pay enough money in return before retirement vs placing that same cash + non taxed dollar amount into a larger portfolio of the 401K.

So if got a raise my first thought should be my 401K addition, not adding $$ into an app like fundriser.

this is taking into consideration that 401K is "untouchable" till a given age and is considered retirement and very long term. so what really should be paying off and making you extra cash before retirement should be risky high return investments.

Am I wrong in this logic? Thanks all!

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It's typically advised to only contribute up to your 401k match. Once there is no longer a match, or in other words, free money, invest other funds into an IRA. The reasoning is 401 plans are typically limited in the investments you can choose and will be taxed upon withdrawal. However, it varies, so if you feel it is optimal for you to continue to invest in your 401k based on your analysis then continue to do so.

Regarding your logic with taking on more risk with after-tax dollars. Higher risk comes with a higher reward, but the risk persists. This means it is possible to further decrease the amount of money you have. It has already been taxed, then you risk the potential to lose it all or significant amounts by taking on additional risk. It can be argued that it is better to preserve the after-tax dollars since they have already been reduced by being taxed.

M

Hello @Trevor,

I was in the same predicament as you mentioned above on this thread. After doing some googling and reading a slight page of Dave Ramseys book, he pretty much mentioned the same thing that @Maykel said. Max out 401K. After that, invest in IRA (I would say ROTH) so when you pull out in the future, its already taxed. I personally am doing this now. Just started it. I would not want to get taxed from only pulling out from 401K. You mentioned real estate, I would recommend this for sure. More ROI and its monthly if you get a good deal. I would personally not buy right now. It is a sellers market now. I will wait for prices to tumble. I will be saving on the side to purchase another home.

R

you both touch on a point: invest in 401K as much as your employer matches is the general advice. Tend to agree, however there are additional options to continue on 401k without matching. Something else mentioned is the idea of taxable retirement income vs non taxable (Roth).

So thinking this is my action plan:

In my circumstances I am past the beginning steps: 2k emergency fund, 8 month expenses liquid savings, no student, car or CC debt, no debt at all till I buy a home.

401K up to employer matching (complete)

Roth 401K - up to max able to contribute (19.5K yearly, 2 year plan to get to this point)

within 2 years:

Fundrise - $1k boost yearly (bonus or other hustle) , $100 monthly

M1 or webull - investing stock market (unsure of amounts or strategy yet)

after all the above: ???

T

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