Author Topic: Noob question about 401k  (Read 1012 times)

LivesForever

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Noob question about 401k
« on: February 04, 2019, 03:16:35 PM »
Hi, I have a possibly dumb question about 401k savings.  If I put most of my savings into a 401k, and I want to retire early, I won't be able to access my 401k money without penalty until I'm 67.  Should I still be maxing out my 401k?  Should I be keeping some in taxable accounts instead?  Is there a primer on this kind of stuff?

If I understand correctly, at my current saving rate, I should be able to "retire" by 51, but I don't know that a 401k is my best saving vehicle.

Thanks, everyone!

mudstache

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Re: Noob question about 401k
« Reply #1 on: February 04, 2019, 03:29:32 PM »
Hi there!  That is a great question, because it's not advertised in normal circles that you can access your money before retirement age.  Check out this MMM post: https://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/.  There's also a recent post that sums it up another way too: https://www.mrmoneymustache.com/2018/11/29/how-to-retire-forever-on-a-fixed-chunk-of-money/.

As for the order, there's a fantastic sticky here in the forum that helps with that too.  You start at the beginning, and you don't move to the next step until the one before it is done (or not applicable).  https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

Good luck to you! 

LivesForever

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Re: Noob question about 401k
« Reply #2 on: February 04, 2019, 03:32:48 PM »
Thanks, that's great!  I will read those right away.  The blog is so big, I wasn't sure how to find this info.

dandarc

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Re: Noob question about 401k
« Reply #3 on: February 04, 2019, 03:41:39 PM »
67 is probably normal retirement age for social security. The age you're probably thinking of is 59.5 with regards to the 401K - the basic rule being "withdraw before 59.5 and you pay 10% additional tax". A lot of people seem to think the money is either truly locked away, which just isn't true, or can't be accessed early without penalty, which is also untrue. Sticky describing the main ways around the penalty is here:

https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

I was in the "can't access retirement accounts without penalty" camp when I first got to this site. Once I really understood that was incorrect, what to do now while accumulating became obvious - max out all tax-advantaged space before investing a dollar in taxable investments.

LivesForever

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Re: Noob question about 401k
« Reply #4 on: February 04, 2019, 05:22:24 PM »
Thanks, this is great advice!