Investing more in taxable brokerage than retirement accounts

Submitted by goookologist t3_z88igc in personalfinance

Does it make sense to invest more in a taxable brokerage than in retirement accounts?  I am 24 and want to have investment assets to spend in my 30s, 40s & 50s on consumer products like cars and nice vacations or paying off my house.  I invest ~10% of my income for retirement and ~20% in a taxable brokerage, both in low cost index funds.  I plan on ramping my retirement saving to 20-25% as my income increases throughout my 20s.  A lot of the advice I see online recommends maxing out retirement accounts before saving in a taxable brokerage, but it seems to me that doing both makes sense instead of purely focusing on long term saving.  I appreciate any insights.

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zacce t1_iyaewuz wrote

as long as you max all the tax advantaged space, then nothing wrong with investing more in taxable.

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zwzwzw19 t1_iyaftal wrote

Max out the tax advantaged accounts first. There are ways to access this money early and still reap some or all of the tax advantages.

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goookologist OP t1_iyahzwi wrote

Can you explain this a bit more? I thought with accounts like roth IRAs you could only withdraw the principle penalty free not the growth.

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zwzwzw19 t1_iyais8w wrote

That is correct with Roth. You can access contribution money, therefore it’s partially accessible prior to normal retirement age. For 401k and IRA you can either pursue a SEPP 72t plan or a Roth Conversion to access the money early and still gain some or all of the tax advantages depending on your strategy and tax bracket.

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Coronator t1_iyb2s75 wrote

I would only recommend this with a good 401k plan, typically from larger companies that offer plans with low fees. There are so many 401ks out there that end up having fees in the 1.5-1.75% range that completely negates any long term tax advantages, and then some.

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zwzwzw19 t1_iybg5gc wrote

Agree and disagree.. they should pursue lowest fees possible (I’m a Boglehead myself), but even with outrageous fees, if there is a positive return, the benefits of the tax advantaged plans will likely far exceed the higher fees.

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Coronator t1_iycigaa wrote

Losing 20% of your returns over the course of 20 years is far more impactful than taxes. Do a calculation to see for yourself. It’s why so many people are better off just funding their 401k to the match and then moving on to a brokerage account.

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