Investment and taxation question

[washingtonteach]

I have recently discovered MMM and have become inspired to retire early! However, I have a question about the best investments for my taxation scenario.

I am a married educator with three kids. Because I have a very low effective tax rate right now, I have been putting most of my money into a Roth IRA. I figure it is a smarter choice than a traditional IRA, 403(B), or 457 because I may actually be in a higher tax bracket when I retire.

I know that if I retire early and begin withdrawing from my Roth I will have to pay a 10% (which actually may not be a huge deal). My question is why should I not just put the money into a personal brokerage account? I am paying very little in taxes now, I would not have to pay capital gains because of my tax bracket, and I wouldn't have to pay a 10% penalty to withdraw the money. So it seems it would make more sense to put it in a personal brokerage account? But I feel like I am missing something. For what reasons would it be better for me to put money into my Roth instead of a personal brokerage account?

I am also curious as to what order you think I should fund my retirement. I have been putting most money into a Roth and a little bit into a 457 (which is nice because I won't have to pay an early withdraw penalty).

Here is the order I was thinking of: Roth, personal account, 457, and then 403 (B). What do you think?

Thanks again for all of your help. I have already learned so much!

[Financial.Velociraptor]

After 5 years you can withdraw the contributions but not the earnings from a Roth, penalty free.  see this sticky thread: https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

[Rob_bob]

I believe the Roth rule is that if you are over 59.5 years old you can withdraw gains without penalty if you have held the account for 5 years.  Roll overs from a tIRA must season 5 years.

Your contributions  may be withdrawn at anytime without penalty.

Check here:

https://www.rothira.com/roth-ira-withdrawal-rules

[MDM]

Because I have a very low effective tax rate right now....

Washingtonteach, welcome to the forum.

The effective rate is irrelevant for this question.  You should look at your marginal tax rates, both for saving today and expected withdrawal later.  See Traditional versus Roth - Bogleheads.

For what reasons would it be better for me to put money into my Roth instead of a personal brokerage account?

Never paying taxes on it, and its gains, regardless of future tax bracket.  See also Taxation of Social Security benefits: Roth withdrawals do not affect SS benefit taxability, but capital gains and dividends do.

I am also curious as to what order you think I should fund my retirement.

The generic advice is in Investment Order.  How does that look for your specific situation?

[washingtonteach]

Because I have a very low effective tax rate right now....

Washingtonteach, welcome to the forum.

The effective rate is irrelevant for this question.  You should look at your marginal tax rates, both for saving today and expected withdrawal later.  See Traditional versus Roth - Bogleheads.

For what reasons would it be better for me to put money into my Roth instead of a personal brokerage account?

Never paying taxes on it, and its gains, regardless of future tax bracket.  See also Taxation of Social Security benefits: Roth withdrawals do not affect SS benefit taxability, but capital gains and dividends do.

I am also curious as to what order you think I should fund my retirement.

The generic advice is in Investment Order.  How does that look for your specific situation?

Thank you for the good reading!