My son is 30 years old and would like to be FI in 20 years (I was FI and retired at 52). He has a crummy 401K at work. They only match up to $400 (max) a year and their fund is rated one star by Morningstar. He owns a small Condo outright (got it as a foreclosure) and needs to save about $600,000 to go FI. Using the 4% rule he needs about $24,000 per year in investment income.
He has a Vanguard Life Strategy moderate Growth fund (VSMGH) ROTH IRA and the same fund in a taxable account.
My advice to him was to forget the 401K, max out the Roth IRA at $6000 per year and put an additional $9000 per year into the taxable account. In 20 years he will have invested $120,000 in principle and have $126,000 in growth in the Roth IRA and ("assume 7% growth) $369,000 in his taxable account. Using the 4% rule He can take out about $10,000 a year from the Roth IRA until age 60 ($100,000 total) and not pay a penalty or taxes. And take $14,000 a year from has taxable. To make up the income difference.
I haven't seen anyone recommend using a Roth IRA as a core holding for a FI fund as long as you don't withdraw more than you put in as principle to avoid the tax penality. I don't see a down side and you save the taxes. Am I missing something?