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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AutoModerator t1_iyabiax wrote on November 29, 2022 at 10:36 PM

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zacce t1_iyaewuz wrote on November 29, 2022 at 11:00 PM

#782,086

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

zwzwzw19 t1_iyaftal wrote on November 29, 2022 at 11:06 PM

#782,300

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.

goookologist OP t1_iyahzwi wrote on November 29, 2022 at 11:22 PM

#782,783

Replying to zwzwzw19 (#782,300)

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.

zwzwzw19 t1_iyais8w wrote on November 29, 2022 at 11:27 PM

#782,923

Replying to goookologist (#782,783)

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.

Coronator t1_iyb2s75 wrote on November 30, 2022 at 1:56 AM

#787,551

Replying to zwzwzw19 (#782,300)

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.

zwzwzw19 t1_iybg5gc wrote on November 30, 2022 at 3:41 AM

#791,339

Replying to Coronator (#787,551)

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.

Coronator t1_iycigaa wrote on November 30, 2022 at 11:25 AM

#801,153

Replying to zwzwzw19 (#791,339)

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.