Moonshadow if I plan on using a Roth pipeline in the future though, then it probably makes more sense to use the traditional IRA right? (Somebody correct me if I'm wrong), but the way I understand it:
$$ into traditional IRA (not taxed) > move untaxed money into Roth IRA (conversion) > +5 years > withdraw conversion money from Roth, tax free
In this way, I don't have to pay taxes on withdrawal of the money, I just have to wait 5 years before taking it out. Is this correct?
The step I quoted gets taxed at the rate of the year it happens within, and also contributes to MAGI, so could actually result in a net higher tax rate than simply taking the tax income hit on the front end with the regular annual contribution limit of the Roth. The Roth pipeline is a method of getting around that limit for certain individuals, but it
will not result in a lower tax bill if you are still working when you do it. Also, the combined annual limit for both types of IRA accounts prevents you from being able to contribute to both, and do a Roth conversion later and come out ahead; it just results in extra tax forms you have to keep track of.
That said, a traditional 401k > traditional IRA > Roth IRA path might be in your interest if 1) you make too much to contribute to a Roth at all or 2) you just FIREd the year before and have enough room in your bottom tax bracket to move 401k funds into a Roth pipeline.
#1) is a good problem to have under any conditions.
#2) is a fine early retirement plan, but you still need to have at least 5 years expenses of
contributions saved into your Roth, because (specific to that rolled over 401k deposit) another 5 year clock starts ticking, so you can't access those newly pipelined funds from the 401k until it has aged in the Roth for 5 years or more. This trick does not work with a traditional IRA at all.
So, I reaffirm that maxing out the annual limit on a Roth IRA is rarely a bad plan, because contributions can be used for expenses during the first 5 years of early retirement, as an emergency fund prior to that (but only after it's been open for 5 years), to contribute towards a down payment of your first home (if you wish, not often the best idea), to pay for excessive medical expenses (even if you have an HSA, but also not often the best plan), to reduce your need for life insurance if you have a family later, and for many other purposes.
With this in mind, how many years of full annual contributions, at $5500 per year presently, would it take you to confidently pay for one year of early retirement expenses? I'd say at least 3 years for every one, or $16,500, per adult; but probably 4 years ($22K). Those numbers will increase with inflation, but so does the annual contribution limit; so the ratio will remain the same. Rather conveniently, if you get married, your spouse can also open his/her own Roth, with it's own annual limit, so getting married doesn't alter the number of max contribution years.
Based upon that, I'd say the typical young adult will need 15 to 20 years of max contributions to a Roth in order to be able to depend upon that account
alone to get them through the first 5 years of early retirement, so that their pipelined funds can be accessed without penalty. If you get there and find you don't really need to withdraw your contributions, even better; they can continue to grow inside a well protected (legally) and tax advantaged vehicle till you choose otherwise. If you have a family crisis at year 12 that demands $30K from your Roth, at least you had it available.
Most of these arguments also apply well to the HSA. Get one for yourself, if you can;
especially if you don't think you will have any need for it anytime soon. Even if you only contribute to it for a few years, and then switch to another form of health coverage, those stached funds will form a backstop to a medical crisis. And if you never need those funds either, all the better still; you can use them to pay for your medical expenses or premiums in early retirement.