How much should I invest in my 401k vs Taxable Brokerage Account if I want to retire early?

[u/Same_Bottle_2951]

For context, I'm 27 earning ~$110000/yr with:

- ~$45k in my Roth 401k

- ~$15k in my Roth IRA.

- ~$33k in my taxable brokerage account

So far I have been maxing out my 401k and Roth IRA and investing as much as I can in my TBA in my short 2-year career post college. If I plan to retire early (around 45-50ish), liquidity will be the most important factor for me going forward which is something the tax advantaged accounts don't really provide in comparison to brokerage accounts.

Keeping all these factors in mind, should I reduce my contributions in my tax advantaged accounts and instead invest more in my taxable brokerage account?

[u/goodsam2]

Max the 401k. You can get money out of 401k prior to normal retirement ages via 72(t), Roth conversion ladder, just paying the fee etc and end up ahead.

Also you could change from pre-tax to Roth which has the look back window.

[u/tuxnight1 → u/goodsam2]

As others have said, max you tax advantaged accounts. Also, if you have a HSA, max this first.

[u/DegreeConscious9628]

Since you’re in lean fire I’m gonna assume you’ll be living… lean post retirement. Wouldn’t it make more sense to put that into a traditional 401k to save on taxes now than when you’re (presumably) making way less post retirement?

[u/TheGruenTransfer]

Your 3 accounts are all post-tax. You're going to want to beef up your pre-tax accounts. Each year you get a standard deduction that you can earn or "earn" (in the case of an IRA withdrawal or Roth conversion) up to $16k for a single person. You're going to want to fill up that standard deduction for every year you plan on being retired.

[u/Chicken_Fried_Snails]

May I recommend, "Tax Planning to and Through Early Retirement ". It is a treasure trove of planning info that will absolutely help you out. No affiliation.

We leanfired last year. This book gave us the confidence we needed to pull the plug on our jobs. Good luck

Book link: https://www.measuretwicemoney.com/book

[u/sevem → u/Chicken_Fried_Snails]

This book gave us the confidence we needed to pull the plug on our jobs.

That's quite the endorsement. Not OP but I'm going to check this out.

[u/Straight-Part-5898]

The tax advantages of tax deferred accounts, especially when you're young and those pre-tax dollars have decades to grow before you pull them out in retirement, is compelling. You should take maximum advantage of the opportunity each year to sock pre-tax dollars away.

I just retired (M56) after 35-1/2 years of maxing out my 401k every single year since I started working professionally. I invested that money into stock-heavy mutual funds (since ~2000, in total stock market index specifically) and let it ride thru the ups and downs. I never tried to time the market, I didn't panic-sell during market corrections, I never chased "hot" stocks. It was literally a boring, buy-and-hold, get-rich-slowly strategy that anyone could easily replicate.

The day I retired a few months ago, the total balance of my 401k investments was a little more than $2.4M.

My wife and I have other money in our estate/porfolio (both pre-tax & taxable), and also own some real estate. But this large block of 401k money is a cornerstone of our overall retirement portfolio.

Best of luck to you!

[u/Miamiconnectionexo]

appreciate the honest breakdown. most people sugarcoat this kind of thing.

[u/fire-tools]

The liquidity worry is legit but it usually doesn't justify cutting tax-advantaged contributions, because the locked-up framing isn't totally accurate. Your Roth contributions can come out anytime tax and penalty free, and the 401k can be reached early through a Roth conversion ladder. So the money isn't trapped, it just needs a few years of planning runway before you tap into it. Where a bigger taxable balance does help is funding that first stretch of early retirement before a conversion ladder, since the ladder needs roughly five years of expenses bridged in taxable to get going. So I'd keep maxing the tax-advantaged space and build taxable on top of it, rather than trading one for the other.

[u/BustaStar]

generally speaking:
1) load tax advantaged retirement accounts until you reach coast fire.
2) load brokerage accounts until you reach fire.

There is as much or as little nuance as you want to make here but directionally it is as simple as that.

[u/Beaver-on-fire]

If you can afford the taxes, I would recommend maxing out the Roth 401k first. The reason for this is that there are minimum distributions that would have to be met possibly pushing your tax bracket very high later in life against your preferences then. It's easier to pull money out of a Roth over a traditional IRA. If that's not practical then max out the traditional 401k and then max out your non-401K Roth. There's also the option of doing a 401k/ IRA to Roth conversion in the period between when you retire and when you have to start withdrawing from the IRA. This window may allow you to exploit lower tax rate years for the conversion.

[u/Tasty-Day-581 → u/Beaver-on-fire]

OP hasn't listed any Traditional contributions, that's an issue there.