{ "media_type": "text", "post_content": "I am 24 years old and the advice I have been given is to max out my IRA and 401k before investing into a taxable brokerage account. If I do not plan on working until I am 59 1/2, is this sound advice since there is a 10% penalty of early withdrawals for both accounts?", "post_id": "60f9579b39459600208d992d", "reply_count": 14, "vote_count": 1, "bowl_id": "59064a3cb12379001006592c", "bowl_name": "Personal Investment Chatter" }

I am 24 years old and the advice I have been given is to max out my IRA and 401k before investing into a taxable brokerage account. If I do not plan on working until I am 59 1/2, is this sound advice since there is a 10% penalty of early withdrawals for both accounts?

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There are ways to get around the penalties. You should visit a FIRE website

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Thanks! I will google some FIRE websites. I did not know there are workarounds.

Look at Roth IRA instead of IRA. Definitely workarounds exist but the basic idea is to save for long term.

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I currently invest in a Roth IRA. How do you know when to “switch” to a traditional IRA other than the maximum income bracket. This more so applies to Roth 401ks since those don’t have income brackets.

I think the logic still applies though to recommend maxing out the tax advantage accounts first. If you're going to retire early you're going to need much more $$s to last through retirement than the caps for those particular accounts allow anyway. You're likely doing both tax advantage and taxed brokerage accounts to hit your overall FIRE number. So it doesn't really matter which you're doing "first" if you're doing both. But.... If there's any risk you don't have the income to both, that's where the advice to do the tax-advantage first comes in to play... Someone else recommended checking out FIRE blogs, I second that, lots of them detail how to manage investments to cover those years in between your retirement target and the "official" ages you can penalty free withdraw.

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This is great advice. Thanks! I never calculated how much my accounts will add up to when I retired but I know there’s a “FIRE #” that I need to look into.

I am 33 and we both max out our 401K, IRA and HSA before putting anything in regular brokerages. Tax free growth compounding adds up. You can withdraw principal from the Roth after 5yrs no penalty.

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I get you. You’re probably overthinking it. Because as you progress, your income will also increase. Generally I think of retirement as retirement. I don’t want the option to access it early so my general rule is to put money away that I would not need. In retirement, I’d most likely set up couple LLCs/S-Corp and figure out how to manage my PIT then. Not much leeway on W2

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