401(k) vs. early retirement investments

[spruce]

Hi mustachians,

I've been a reader of MMM for a few years now, and recently have started to go back and read all the posts since the beginning (haven't finished yet).  Something that I'm still struggling with though is how much of my savings to put into "early retirement" funds (Vanguard investments, downpayment for a rental property, etc.) vs. "traditional retirement" (401(k), etc.)

I recently took a job with state government where I am contributing to the state pension. However, this employer does not provide a 401(k) match. I have a little bit in my 401(k) from my previous employer who provided a 2% match.

My boyfriend (29) and I (27) have done the early retirement math and figure we can retire in about 13 years including some strategic rental investments.  I am planning on working for at least 10 years anyways, as I am part of the public service loan forgiveness program and I would be vested in the state pension after 10 years.

While the 401(k) has the benefits of being able to contribute pre-tax income, it seems that I should be focusing instead on building the stash that will let me retire early, kicking off 4% from ER to infinity, rather than tying that money up in a 401(k) I can't access until I'm in my 50s/60s.  The pension would be icing on the cake. Am I missing something? Thanks for your guidance!

[jpo]

Take a look at http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/.

[DoubleDown]

Do both! Invest in a 401k to take advantage of significant tax savings, and invest as well in taxable accounts to give you some funds you can access without limitation. It would really be a shame to miss out on 401k tax advantages, even without matching funds from your employer. Compounding those tax savings over all your investing years can make a big difference in how much money you can accumulate.

You may already be aware of this, but there are several methods for withdrawing 401k's and IRA's without penalty prior to age 59.5. If you look up "72t withdrawals" and "Roth conversion pipeline" you'll find some excellent ways to access those accounts earlier, if you want.

[ToughMother]

Something else to look into, which is the best of both worlds, is a 457 plan.  A lot of state government positions offer them (mine does!).  It is tax deferred, up to 17.5K a year, AND you can get it out when you leave the job regardless of how old you are -- no penalties, just the tax as you take it out.

After they take out the mandatory amount for my pension contribution, I shovel as much as I can into my 457.  Also, our state has some nice low cost index funds...not Vanguard or Fidelity but their own instrument with Vanguard-like expense ratios.

Good luck!

[little_owl]

I work for a private company, with no pension, but we do both.  We max out our 401ks, because....why not?  Tax savings, employer match, and access to great investments (mine is even through Vanguard) means it is a no-brainer.

If we need to access that money before I am old enough, I will do SEPPs.  Otherwise, we continue to invest in Vanguard account to help fund FIRE.  Our current plan is to retire when our FIRE money (not 401ks) is enough to replace income.  This plan is super conservative, which gives us flexibility to retire even earlieer, go part time even earlier, etc, if we can't wait the 10 years :)