Max 401k vs. contributions to non-retirement account?

[Home Stretch]

I am fortunate enough to have the option of maxing out both my Roth IRA and my 401k for the first time this year. For the past 3 years I have been paying down debts and saving for a house, so I was only contributing enough to get the maximum match from my employer.

My primary goal is FI as early as possible (mid to late 30s). Am I better off stashing all of my savings in my Vanguard mutual fund or maxing out my 401k with tax free contributions before contributing to that fund?

I am currently 26 and I intend on living off investment returns when I am FI in addition to whatever income I make on the side with fun self-employment.

[shuffler]

The standard recommendation is to max-out your tax-advantaged options.  So that'd be 401ks, IRAs, HSAs, etc.
That's what I do.

The two main objections to maxing out 401ks that I've heard are:
  #1 - I want to be able to access it earlier than 62.
  #2 - I want more investment options than what my 401k provides.

For #1, there are ways to access the funds early.  Look into SEPP / Roth Pipelines if you're interested.

For #2, that can be a real problem if your 401k plan is limited.

[Home Stretch]

As far as reason #1, as I said in my original post, I am currently planning on FI ("retirement") around 35, which is, of course, 25 years before I could withdraw from a 401(k) without a tax penalty.

Reason #2 is not an issue as it is a Vanguard 401k with plenty of investment options.

I am also interested in real estate investments (rental properties, flipping homes, etc...), and I feel that squirreling away cash in a 401(k) will be a huge opportunity cost in the long run.

Thoughts? Anyone else have a similar dilemma?

[Eric]

Definitely max your 401k.

http://www.madfientist.com/retire-even-earlier/

http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/

[Undecided]

As far as reason #1, as I said in my original post, I am currently planning on FI ("retirement") around 35, which is, of course, 25 years before I could withdraw from a 401(k) without a tax penalty.

Reason #2 is not an issue as it is a Vanguard 401k with plenty of investment options.

I am also interested in real estate investments (rental properties, flipping homes, etc...), and I feel that squirreling away cash in a 401(k) will be a huge opportunity cost in the long run.

Thoughts? Anyone else have a similar dilemma?

But you saw the point about objection #1 not actually being true, right? The suggestion to look at SEPP/72(t)?

[Home Stretch]

Thanks for the replies/suggestions. Looks like my 401(k) is getting some extra attention from here on out!

[Cheddar Stacker]

I am also interested in real estate investments (rental properties, flipping homes, etc...), and I feel that squirreling away cash in a 401(k) will be a huge opportunity cost in the long run.

Thoughts? Anyone else have a similar dilemma?

I agree with everyone else so far, particularly on the Mad Fientist thread. However, part of my plan is similar to what you said above related to real estate. I'm doing my best to balance these two objectives right now. My current allocation is to max my 401K without question, no excuses. The tax benefit is just too large to pass up. I can't deduct a contribution to a Traditional IRA due to income limits, so all extra funds are going into after tax brokerage accounts to build real estate capital for a year or two.

Based on my limited experience in rental real estate, and discussions with very close friends/clients, I am excited about the higher than stock market returns available in RE investing and want to make sure it's part of my portfolio. I think this will greatly accelerate my path to FI using some debt leverage. However, I will absolutely max out the 401K first as I believe the tax benefit far outweighs the potential higher returns in RE.