Question about IRAs versus Vanguard Index Fund

[beeps_mustache]

Hey all,

First post here but have been nerding out on the MMM way. Excited to be on my way to FI!

I have a quick question regarding investments. I'm currently able to save 52% of my income (and slowly making that number higher). I have an employer matched 401k at 5%. Awesome! This will be great when I turn 60 years and years from now.  My question is where to put my 52% savings? I've opened a Vanguard account and have been investing the three fund approach as suggest by MMM, Graham and Bogle. I basically plan on dumping my monthly savings into this Vanguard account. My question is if I should open a traditional IRA as well and have that maxed out yearly? Or is the Vanguard account and 401k all I need? Any advice would be greatly appreciated! I'm stoked to have joined the community!

[MDM]

Put as much into tax-advantaged accounts as you can.  See http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/ if you are concerned about that topic.

[innkeeper77]

You can access money from a 401k, roth, traditional IRA's before you turn 60- in multiple ways- and still get a great tax benefit out of it! If you are willing to do a bit of financial "hacking" you will have a lot more money, sooner, due to tax benefits.

Read this page, especially the "Roth IRA conversion ladder" section.

In short, after retirement you can convert money from a 401k etc to a roth IRA, pay lower taxes than you would now, and use that money 5 years later with no fees.

If you are willing to do that, the ideal savings hierarchy is: 401k up to your employer match, then max your traditional IRA. If you can do that, go back and max your 401k and THEN invest in completely taxable accounts. That should shave more than a few months off of your required work years.

[forummm]

Definitely do an IRA too. If you have a spouse they can do a 401k (if available) and an IRA also. They can do an IRA even if they don't work. Some people also do an HSA if they have a HDHP.

[beeps_mustache]

Great! Thanks so much for the advice, all!