Does Investment in a Real Estate 401K Plan Make Sense?

A report published by The Wall Street Journal, states that a large number of people from the baby boomer generation are falling short of savings that they would ideally need, to maintain their present standard of living in retirement. The study analyses that in order to live comfortably until the sun sets down on their life, an elderly couple will need to have at least 85% of their annual income, flowing to them from their retirement plans. And a large number of ‘due-to-be-retired’ couples are realizing that their savings from their 401(k) isn’t sufficient to carry them for long.

While some haven’t invested enough, there are others who haven’t invested wisely. A large number of people over invested their 401k savings in the stock market. And when the markets collapsed, they were left high and dry. This trend of quick and high profits has largely affected America for some time now. What’s needed is diversification of investments. Rather than relying heavily on stock market, it makes sense to diversify interests and look at other options including income producing real estate.

It is a known fact that real estate has a traditional history of providing steady returns. And even if there is a change, it’s rarely drastic. Changes in the real estate market happen rather slowly over time and have several factors that contribute to the fluctuations including political, social, tax and environmental factors.

Most administrators do not allow real estate in the 401k because of the heavy burden of paperwork and other responsibilities imposed by the IRS. And even if your administrator were to allow real estate investment through the 401k plan, it’s best to avoid this; there are plenty of complications involved. The best way then is to roll over the savings from your 401k plan (this is allowed by most administrators) to a self directed IRA.

This is done by transferring funds from your current retirement custodian, i.e. your bank or broker to an independent custodian who offers real estate as an option. The custodian is then directed to purchase the property you select. Once you’ve done this, you can go ahead and build your monthly income with your selected real estate investments. You can also select a REIT or a Real Estate Investment Trust to take care of your investments. Rather than worrying about individual transactions and the day to day management of properties, it may make sense to choose from the wide variety REIT companies.

Now, to answer our question about the credibility of a real estate 401k investment….yes, it does make sense….a lot of sense actually. Real estate investment will always continue to remain steady and any slump is only temporary and never permanent. Regardless of the fluctuation in property values a good income stream can be built to last a lifetime.