New to this: Roth IRA v Taxable Accounts

[Maverick44]

Hello All,

First just a little bit about me: I am 26 years old and am on track to retire by 40. Currently, I have my 401K set at 20% of my income, which will be more than enough to cover any of my post 59.5 year old expenses by the time I reach that age. I also have a small amount (only about $12k at the moment) in a Roth IRA and have started to put some $ into my taxable accounts (Vanguard) since I finished paying off about $60k in student loans finally (big mistake to have it in the first place but, young and stupid, right?) that will have to sustain me from the years 40-59.5 .

So, here's my question: Seeing as my 401K will be sufficient enough to sustain my expenses from 59.5 on, do I really need the Roth IRA as well? In general, my feeling is that I would rather take that $ out of the Roth IRA now while it is still just a small amount and the tax penalty would not be as much. I would then put that $ into my taxable account so that I could have it grow there and utilize that $ years earlier as opposed to just having access to my contributions in my Roth.

I am only just starting my financial education and while I think this is the right move for me I am open to opinions, as well as any other suggestions that anyone has.
Thanks!!  :D

[Nothlit]

Your contributions to a Roth IRA can be withdrawn anytime without penalty. It's only earnings which incur a penalty if withdrawn early. Also don't assume that your 401k money is entirely locked up until age 59.5 either. There are ways to get access to it sooner without penalty, too. The most commonly discussed on these forums is the Roth IRA Conversion Ladder.

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

[seattlecyclone]

Yes, what Nothlit says. I consider Roth IRA earnings to be mostly age 60+ money because you have to pay your marginal tax rate plus 10% to take them out early, while you pay nothing to take them out when you're older. Everything else in your retirement accounts can be withdrawn at any age without owing the 10% early withdrawal tax if you plan ahead. Max out your tax shelters first.

[MDM]

Seeing as my 401K will be sufficient....

For your sake we all hope that is true - but it really isn't guaranteed, is it?

Take advantage of all the tax-advantaged space you can, and your odds of success increase.

[The Happy Philosopher]

I would save in an IRA before a taxable account every time. There are tax advantages, asset protection and some estate planning advantages.

Furthermore, having a Roth allows you to control MAGI more in retirement which at present affects health insurance subsidies with the ACA.

[Maverick44]

Thanks for the input guys! Takinginto account your guys' inputs. I will continue to plug away at the Roth IRA for tax purposes.