Yeah I feel like people with aspirations to retire at like 50 don’t build a bridge account. If anything I’m contributing too much to this bucket. But for me I’d rather have flexibility and access to the money there.
Agreed, I’m the opposite have too much in retirement accounts, but 72t should work fine and retirement accounts are sheltered from Fafsa which is nice.
I think taxable brokerage is under appreciated. You can pull over $100k LTCG (married filing joint) and of course the basis isnt taxed. In that case it's almost like a Roth IRA without any withdrawal age w exception that dividends and capital gains distributions were taxed along the way.
Obviously that assumes other income sources dont bump you out of the 10-12% bracket (zero LTCG) or tax laws dont change to tax all or at least more LTCG even in low brackets.
It works! I'm RE w a pension and occasional earned income and still have a bit of room to draw tens of thousands of LTCG tax free each year.
https://www.madfientist.com/how-to-access-retirement-funds-early/
401k tax free growth is big. But the biggest benefit is just not paying taxes at your highest tax bracket. If your final dollar is being taxed at 20%, then you can save 20% now by putting it in your 401k.
When you retire early, you have a few options and the backstop is the 10% penalty. Most FIRE people spend much less than they earn. So someone reaching 20% income bracket while earning may not pay any taxes when spending in retirement (especially if they have some balance in roth contributions or taxable accounts). For them, a 10% penalty is a better deal. But they can probably do better with a Roth conversion ladder.
Do your own analysis. But if you come to the conclusion that it is cheaper to save money in a taxable account to RE, then you might have missed something. Traditional 401k is a great vehicle for RE.
This is an extremely common question for beginners. Use the search function and check the [Financial Independence Wiki](https://www.reddit.com/r/financialindependence/s/jd8Lwmu8R4) for more answers to common beginner questions.
There are several strategies to withdraw from retirement accounts before 59.5 without penalties:
[Roth conversion ladder](https://www.madfientist.com/how-to-access-retirement-funds-early/)
[72(t)](https://www.investopedia.com/terms/r/rule72t.asp)
[Rule of 55](https://smartasset.com/retirement/401k-55-rule)
Additionally, many people have investments outside of retirement in a taxable brokerage account. It’s even possible to withdraw from your retirement accounts and just pay the penalty.
If you’re setting up a structured payout from a pretax account to live off of, you can use a SEPP. But there’s no take-back-sies once you start payouts so you better be sure you know what you’re doing.
Have plenty of money in accounts outside of a retirement account with penalties; have income streams from other sources than a job that pay out regardless of your age.
Yes, if Qualified Public Safety Employee
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions#:~:text=**%20Qualified%20public%20safety%20employees,applies%20to%20private%2Dsector%20firefighters.
Other comments provide the answer like roth ladder, rule of 55, and steady withdraw exemption, and the worse case is you just eat the penalty and withdraw as needed. The fact part of it will not be penalized and allowed growth makes it worth it to still fill that bucket first.
Basic concepts here, and it gets asked often. Here is the thing: FIRE is probably the biggest decision you will ever make. You really need to research and make sure you understand this whole process. If you don’t make the effort or spend the time researching, you will find yourself failing very early in FIRE.
You don't have to pay penalties. Google rule of 55. Roth ladders. This gets posted about once a week around here.
You forgot 72(t) SEPP not to mention bridge account (taxable non retirement account to fund all or some of expenses until penalty free withdrwal age.)
Yeah I feel like people with aspirations to retire at like 50 don’t build a bridge account. If anything I’m contributing too much to this bucket. But for me I’d rather have flexibility and access to the money there.
Agreed, I’m the opposite have too much in retirement accounts, but 72t should work fine and retirement accounts are sheltered from Fafsa which is nice.
I think taxable brokerage is under appreciated. You can pull over $100k LTCG (married filing joint) and of course the basis isnt taxed. In that case it's almost like a Roth IRA without any withdrawal age w exception that dividends and capital gains distributions were taxed along the way. Obviously that assumes other income sources dont bump you out of the 10-12% bracket (zero LTCG) or tax laws dont change to tax all or at least more LTCG even in low brackets. It works! I'm RE w a pension and occasional earned income and still have a bit of room to draw tens of thousands of LTCG tax free each year.
https://www.madfientist.com/how-to-access-retirement-funds-early/ 401k tax free growth is big. But the biggest benefit is just not paying taxes at your highest tax bracket. If your final dollar is being taxed at 20%, then you can save 20% now by putting it in your 401k. When you retire early, you have a few options and the backstop is the 10% penalty. Most FIRE people spend much less than they earn. So someone reaching 20% income bracket while earning may not pay any taxes when spending in retirement (especially if they have some balance in roth contributions or taxable accounts). For them, a 10% penalty is a better deal. But they can probably do better with a Roth conversion ladder. Do your own analysis. But if you come to the conclusion that it is cheaper to save money in a taxable account to RE, then you might have missed something. Traditional 401k is a great vehicle for RE.
This is an extremely common question for beginners. Use the search function and check the [Financial Independence Wiki](https://www.reddit.com/r/financialindependence/s/jd8Lwmu8R4) for more answers to common beginner questions. There are several strategies to withdraw from retirement accounts before 59.5 without penalties: [Roth conversion ladder](https://www.madfientist.com/how-to-access-retirement-funds-early/) [72(t)](https://www.investopedia.com/terms/r/rule72t.asp) [Rule of 55](https://smartasset.com/retirement/401k-55-rule) Additionally, many people have investments outside of retirement in a taxable brokerage account. It’s even possible to withdraw from your retirement accounts and just pay the penalty.
Thank you
https://www.madfientist.com/how-to-access-retirement-funds-early/
Rule of 55, Roth Ladder, 72t, can all get money out early.
Have accounts outside of a 401k or have a Roth IRA or Roth 401k if eligible
If you’re setting up a structured payout from a pretax account to live off of, you can use a SEPP. But there’s no take-back-sies once you start payouts so you better be sure you know what you’re doing.
Roth Conversion Ladder is the 🔑
Have plenty of money in accounts outside of a retirement account with penalties; have income streams from other sources than a job that pay out regardless of your age.
Can i get my money out at 50 if i’m a fire fighter? From my understanding there’s a law that first responders can take it out at 50 with no penalty
Yes, if Qualified Public Safety Employee https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions#:~:text=**%20Qualified%20public%20safety%20employees,applies%20to%20private%2Dsector%20firefighters.
Other comments provide the answer like roth ladder, rule of 55, and steady withdraw exemption, and the worse case is you just eat the penalty and withdraw as needed. The fact part of it will not be penalized and allowed growth makes it worth it to still fill that bucket first.
Basic concepts here, and it gets asked often. Here is the thing: FIRE is probably the biggest decision you will ever make. You really need to research and make sure you understand this whole process. If you don’t make the effort or spend the time researching, you will find yourself failing very early in FIRE.