Author Topic: Retiring Early: Traditional retirement accounts vs taxable investing account  (Read 2519 times)


  • 5 O'Clock Shadow
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  • Posts: 4
Hi all. Now that I'm shifting my retirement focus to retiring early, it really changes the investing strategy.

Previously I was focusing on my 401k but I won't be able to draw on that without penalty until I'm 55. I'm not too up on IRA's, Roth IRAs, ROTH 401k etc.

As I understand it, the Mustachian plan is to live off the interest of your nest egg but if ANY of my retirement is in a 401k, I won't be able to use that interest to live until 55+ so it really changes things.

At the same time, when I DO turn 55, and can start drawing on the various retirement funds, I do understand that they provide a bit of a tax shelter because your taxable income ends up being lower, so I feel like I should not miss that opportunity (as well as the obvious perks of better interest compounding in a 401k).

Example, say I figure if my house is paid off and I can get $500k in savings, that means assuming a 6% return rate, I'd have $30k per year to live on. But that would require me to have 100% of my savings in a taxable account. If half of that were in a 401k, I'd still earn $30k but couldn't touch $15k of that since it would be locked away until 55.

So for the Mustachian plan, what is the very high-level strategy? It seems like the only way to make it work verbatim to the plan is to put 100% of your savings into a taxable investing account and forgo all 401k, IRA, Roth, etc.

Thanks in advance for any input.


  • Pencil Stache
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  • Posts: 801
  • MMMing in MN
Youngest age for IRA withdrawal without penalty is 59.5 (not 55):

There are many discussions here you can learn from. Search the MMM Forum for SEPP and Roth pipeline. You will find details on alternatives for accessing 401K contributions before 59.5.

Here are a couple more linked to get you started. More on SEPPs:

Roth "pipeline" discussion:


  • 5 O'Clock Shadow
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  • Posts: 4
Thank you very much for the quick reply and the links!

Roland of Gilead

  • Handlebar Stache
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  • Posts: 2125
Try not to think about it as separate money but instead one big pot.

So if you have $500,000 in a taxable account, yes you can withdraw $30,000 without a drawdown of the principal if you earn 6%.

But consider that you are also earning 6% in the deferred account too (if it is invested in the same entity).

Thus if you only earned 4% in taxable and 4% in tax deferred, you could still take out $30,000 and have your overall portfolio still growing, you would just be doing a slight drawdown on the taxable.  As long as you are not 30 years from retirement, it might not matter that your taxable principal is decreasing if your tax deferred is growing leaps and bounds.

Of course there is the 72T thing too.