Retirement Accounts vs. Multifamily Real Estate

Investing in a traditional retirement account, especially if your employer offers a match, is a great way to start setting yourself up for a stable financial retirement. With less and less companies offering pensions, employer provided retirement accounts have become the primary retirement option. While a retirement account plays an integral part in your financial future, investing in multifamily can help to mediate some of the inherent shortcomings of traditional retirement accounts.

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1. Contribution Limits: One significant limitation of traditional retirement accounts is the contribution limit. For example, the annual contribution limit for a 401(k) in 2023 is $22,500, with an additional catch-up contribution of $7,500 for those age 50 or older. While this amount can grow over time, it may not be enough to fund a comfortable retirement for some individuals. Investing in multifamily real estate provides the opportunity to invest as much as you choose, as well as the ability to reach financial goals sooner.

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2. Required Minimum Distributions (RMDs): Traditional retirement accounts require account holders to start taking RMDs once they reach age 73 (previously 72). These distributions are calculated based on the account holder's life expectancy and the account balance. While these RMDs can help ensure that individuals don't outlive their retirement savings, they can also lead to over-withdrawing and potentially increasing their tax burden.

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3. Limited Investment Options: Traditional retirement accounts often have limited investment options, which can be a disadvantage for those who want more control over their investments. For example, 401(k) plans may offer a limited selection of mutual funds or target-date funds, which may not align with an individual's investment goals. When you invest in multifamily real estate, you have the ability to seek out those deals that are in alignment with your financial needs and goals at a given time.

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4. Tax Implications: While the tax-deferred growth of traditional retirement accounts can be a benefit, it can also have drawbacks. When account holders withdraw funds from their traditional retirement accounts, they must pay taxes on those withdrawals. Depending on the individual's tax bracket at the time of withdrawal, this could result in a significant tax burden.  Multifamily real estate on the other hand offers tax benefits in the form of depreciation that can offset the amount owed on personal taxes.

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5. Inflation Risk: Traditional retirement accounts are subject to inflation risk, which means that the purchasing power of the account balance may decrease over time. This is because the rate of inflation may outpace the rate of return on the investments in the account. In general, as inflation rises, so does the value of real estate, making it a great hedge against inflation.

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Investing in multifamily real estate is a great way to diversify your investment portfolio by adding some of the benefits that traditional retirement accounts might lack.