I don’t want to retire at 65. I’d like to be financially independent around 45-50, so I don’t want money stuck in a 401k. Is it better to save independently and pay full tax on income until 50 or to invest in 401k and then just take the early withdrawal penalty?
If you retire that early you'll be retired for a long time. Frankly unless you are planning on living a very self-sufficient lifestyle in retirement and do not need to support others, if you can't max your 401k and have room for other cash, early retirement in mid-40s is going to be very challenging if not impossible.
This is all to say, you should be saving in your 401k for when you can withdraw it tax free. And pulling from your taxable accounts for the early retirement years.
This. People who want to or do retire early often fail to realize how much they spend trying to fill their free time with trips, new hobbies, club memberships, etc.
Do both - I would first max out on any matching from employers. Also would max out on 401k and IRA. If you want to "retire" earlier you will need to save both in and out of retirement accounts
There are ways to get money out of a 401k without penalties. Are you also maxing a Roth IRA? Also the age is 59.5, not 65
Do not under estimate medical costs before turning 65
Don’t throw the match away ... invest at least enough to get the max Match - free $
Invest outside in low turnover mutual funds. It isn’t just a penalty to pull out of 401k. It is that plus the tax.
It is taxed but you get years of tax deferred growth. If you are pulling money out of an IRA or 401k after retirement, there is a good chance it is at a lower rate than now and would be a better choice than using a taxable account
Chief
There are ways in which you move around 401K, IRA, & brokerage to get to an early retirement. It’s super well documented just google it
Son
You should have worked harder in school.
You’ll be working until they carry your drooling hot mess out the door.
Lmao wut
You can also draw from the principal of a roth account without penalty before retirement age.
Google Roth IRA conversion ladder
If your goal is to retire by 40, you shouldn’t be planning to save or contribute to your 401k more than you are currently doing. Saving money is pointless besides having an emergency fund or planning to make a huge purchase in the near future. The reason being you will lose value in your money due to inflation. Maxing out your 401k might not also be the best idea since as you mentioned you will have to pay taxes and penalties. What I would recommend is looking to increase your passive income and try to grow those channels. The most come one being real estate. This would allow you to have some cash coming in on a monthly basis so you don’t go broke if you retire early. The fact is if you retire early, unless you are sitting ok a trust fund you are going to need money to come in from somewhere, especially if you have kids or elderly parents to support. In my opinion, relying on just typical retirement accounts won’t get you to your goal.
I would agree with you if OPs goal was to retire at 60+, but that isn’t their goal. If you are trying to retire early, especially 20 years earlier than the norm, you don’t have the same benefit of time as other individuals to put more money into retirement accounts. OP should try to create other passive revenue channels so that they have some extra source income when they retire early.
I'm also retiring early by 45. You need to save both your 401k to have that when you turn 60 and then also other investments (like mutual funds) to use until then. But since you can likely live until 80-90+, the 401k can still be used for the last 20+ years of your life. I'm saving about 15% of my salary a year for now, expect to work for the next 15 years max, and then it'll grow over at least 15 years from when I stop working at 45 gears old until I may start to need it at 60 years old. As long as you also save a other $30k+ a year in other investments (to use once you turn 45), you can easily retire early after just 15 years and still have plenty of money to enjoy retirement
Rising Star
Just don’t have kids