[USER]

Single income household. Won’t ever make 100k gross. Currently put 23k in retirement account and max 2 roth ira.

If in 12% tax bracket, is it ever a good idea in your opinion to decrease work contributions and put more money in taxable account?

We get no match for our work plan.

[Kris]

What is your goal? To retire early? How early? How many years do you need to bridge before you are able to touch your retirement?

[Jenny]

I think it’s good to have some money in after tax brokerage accounts.

It would give you some flexibility that retirement accounts don’t have.

[Sarah]

I only contribute to the max match in my 401k and the rest I put in roth ira or taxable brokerage.

I want to have the flexibility to retire at any age without penalty.

[Rick]

Maybe but it’s probably better to put a step between work plan or brokerage – Roth 401k and/or Roth IRA

[Stephen]

I just wanted to drop by and say that I’m highly impressed. <$100K gross but >= $23K.

And… I personally wish I had put more in my after tax vs 99% in the pre-tax accounts.

I prob could have retired at 45. My new target is 55.25.
Since you have government jobs…

What are your pension policies?

That.might be a big factor too.

[Michelle]

Similar boat. We make sub 100 total -no big bonuses or raises on the horizon and honestly don’t need them. We are happy.

Have access to only one 401k which we started to max in the last few years (we contribute majority traditional and a smaller portion to Roth), and 2 Roth ira which we started maxing only recently.

We have a fee only advisor and are working the goal of retiring at 55 (currently low 40s and didn’t really come to this goal until very late 30s when we wanted to figure out if we could afford a vacation home).

In all of her Monte Carlos we are fine with the accounts we have.

We’ll live off of Roth contributions and our cash savings until we reach traditional retirement age.

It works for us because even with 2 homes, 3 kids and 2 dogs our spending is well below the “average” family

[Justin]

You always want to max out the pretax contributions. There are plenty of ways to access it early as mentioned in the Mad Fientist article.

But the really important point is that even if you pay a penalty for withdrawing it early, the growth on the extra money invested will outpace the penalty.

Plus, as others have mentioned, the retirement account is more protected from lawsuits, financial aid etc

[Monique]

Maxing out match to employer, then max Roth IRA if eligible, then balance in a brokerage account.

That’s typically a good strategy for most.

However, I max to employer match and the put rest in taxable brokerage account.

I want more liquidity without penalties (and don’t qualify for Roth).

[Shane]

If you have kids, keep in mind that you’ll be expected to liquidate everything in the brokerage to pay for college.

I personally have no idea how to calculate actual cost/penalty for having $$$ in brokerage when applying for financial aid.

[Scott]

if retiring early it may be advantagous to have some in a taxable brokerage to either bridge from retirement to 59.5.

or 5 years expenses to do a roth conversion ladder….

[Charles]

Maybe if you are able to zero out your tax burden without maxing out your 401k.

We had a period of time where our taxable income was low enough that I was able to zero out our tax bill.

Those years I would reallocate my pre-tax to post tax options up to the line of where we would have a tax bill.

However our savings rate was never high enough to then max out our Roth IRAs and have extra to throw at a taxable account.

[Suzanne]

Besides the tax implications, it’s worth considering that retirement accounts are protected from creditors in most states.

If you got sued (at fault car wreck, someone is bitten by your dog, etc)… your $$ in retirement accounts is likely protected, but taxable accounts are not.

I’m not a lawyer so you should check the rules in your state, but that could be a consideration.

[Mitchell]

Just wanted to mention if you’re really only a single income household then you wouldn’t be able to max out both of your Roth IRA’s.

Each individual would need to have their own earned income of at least $7k for you to both max it out.

[Jonathan]

This will be dependent on your goals. If your “happy” with your 12% tax bracket only put the difference from where your at to just under the top end of the 12% tax bracket in the out side brokerage account.

So if you can “make” 10k more taxable income and still be in the 12% bracket.

Then only contribute 13k to the retirement account and the other 10K to your brokerage account

[Brande]

I would if you want to retire early and have easy and a variety of money available to use in your early retirement years.

[Samuel]

Perhaps if you were wanting/needing assets for an early retirement and needed a penalty-free bucket to draw from.

But it depends on so many variables.

A good CFP could help you chart the right path here

[Laura]

It’s best to have a mix of pre tax traditional, Roth tax free, and taxable brokerage, especially if retiring early.

But even if not, it gives you flexibility to take advantage of the tax free bracket while keeping taxes low in retirement

[Author]

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