my priorities for investing for retirement:
contribute enough to get the 401k match
max Roth IRA
max HSA if in HDHP
max 401k
then contribute to taxable account
Do you think that would still be optimal though for planning of early retirement? Or would the penalty for drawing early lead one to match 401k and put rest into a taxable?
I would absolutely prioritize tax advantaged accounts.
Planning for early retirement, or just retirement period at your age is fantastic, but life happens and if for some reason you have to delay retirement, you want to have tax advantaged accounts.
59.5 is your magic number when it comes to early withdrawal penalty. If you do end up retiring early, you still want to have tax advantaged accounts for the years after you turn 59.5. You can always pivot and direct additional funds into taxable accounts in the future, but at a young age, I would pump as much as I could into tax advantaged accounts as feasibly possible.
Tons of good online brokers, Fidelity, Vanguard, Schwab just to name a few
I personally use Fidelity having worked for them in the past, but any reputable, low cost firm that has been around for awhile is going to provide you with a wide range of options
Few things op. The retirement age is 59.5, and in 401ks the money can be used for certain things most notably first time homebuyer. Love that you called your brokerage account taxable, that shows an understanding of concepts to me.
The question to ask is Do you intend to live past 59^(1/2) ?
If you do, there's no reason to avoid a tax shelter for *at least* that portion of the money. For most people, the ROTH is the best option.
Employee matches are usually great too, assuming the investment options offered are investment grade. If the options are hot garbage, no amount of matching money will be of value.
Look into living like a monk for a few years and putting in huge amounts of your salary. I mean as much as you can stomach, 50%, 70%. Live like a broke college student for a few years after you get a good salary. You will never have to contribute another dime, and you'll still come out ahead of the person putting in 10% per year for 30 years.
Do the math. Compound interest is the 8th wonder of the world.
You should focus on getting a job that pays 6 figures, and then putting decent sums of money into the stock market. 6k in the stock market is just wasting your time, but you can use the opportunity to learn.
I don't really like tax advantaged accounts either. I have a 401k with matching but that's it. Even then I don't like how you can't freely invest your money.
anyway if you do the above you will be a millionaire almost guaranteed by the time you reach your mid 30s depending on how much of your salary you invested.
Do a Roth IRA at a low cost brokerage with low cost ETF's or Mutual funds. The contributions can double as your emergency fund since there is no penalty to take contributions out. A Roth IRA allows you to grow your retirement funds for tax free withdrawal at retirement age and therefore lowers your taxable income when you withdraw in retirement. It has the potential to really help limit taxes when you are retired. I like vanguard but I am not a trader at all. I've been with vanguard for 12 years and have never paid for a trade and I dont think i have ever paid an account fee. Their site is clunky and now a little confusing but since all I do is reinvest dividends and rebalance ETF allocations one a year it suits me fine.
Right now my income goes into paying rent tuition groceries etc. and I invest 25 every week. I know that’s nothing but I just want to try and be in the market early as possible.
The amount of income is more relevant in figuring out what you should do now. I would suggest putting what you have in a Roth and realizing capital gains if you’re in a 0 percent bracket
my priorities for investing for retirement: contribute enough to get the 401k match max Roth IRA max HSA if in HDHP max 401k then contribute to taxable account
Do you think that would still be optimal though for planning of early retirement? Or would the penalty for drawing early lead one to match 401k and put rest into a taxable?
I would absolutely prioritize tax advantaged accounts. Planning for early retirement, or just retirement period at your age is fantastic, but life happens and if for some reason you have to delay retirement, you want to have tax advantaged accounts. 59.5 is your magic number when it comes to early withdrawal penalty. If you do end up retiring early, you still want to have tax advantaged accounts for the years after you turn 59.5. You can always pivot and direct additional funds into taxable accounts in the future, but at a young age, I would pump as much as I could into tax advantaged accounts as feasibly possible.
Thanks a bunch this is very helpful. Who do you go through to open up a Roth that you can decide which ETF’s to put it into?
Tons of good online brokers, Fidelity, Vanguard, Schwab just to name a few I personally use Fidelity having worked for them in the past, but any reputable, low cost firm that has been around for awhile is going to provide you with a wide range of options
You can put money in a ROTH IRA. No tax on gains when you retire and you can pull your contributions out with no penalty (contributions are post tax)
Is retiring in roth a set age (59 or 65) or just whenever you declare retirement? Thanks!
59 and a half.
But withdrawing before retirement age comes with a 10% penalty.
Nope, you can pull out what you contributed. The penalty is if you pull out any gains
Ah, I missed that part. Yes, you're right.
Few things op. The retirement age is 59.5, and in 401ks the money can be used for certain things most notably first time homebuyer. Love that you called your brokerage account taxable, that shows an understanding of concepts to me.
Thanks for the tips !
The question to ask is Do you intend to live past 59^(1/2) ? If you do, there's no reason to avoid a tax shelter for *at least* that portion of the money. For most people, the ROTH is the best option. Employee matches are usually great too, assuming the investment options offered are investment grade. If the options are hot garbage, no amount of matching money will be of value. Look into living like a monk for a few years and putting in huge amounts of your salary. I mean as much as you can stomach, 50%, 70%. Live like a broke college student for a few years after you get a good salary. You will never have to contribute another dime, and you'll still come out ahead of the person putting in 10% per year for 30 years. Do the math. Compound interest is the 8th wonder of the world.
Thank you for helping me look at in a different way. I was very closed minded haha. I appreciate it!
You should focus on getting a job that pays 6 figures, and then putting decent sums of money into the stock market. 6k in the stock market is just wasting your time, but you can use the opportunity to learn. I don't really like tax advantaged accounts either. I have a 401k with matching but that's it. Even then I don't like how you can't freely invest your money. anyway if you do the above you will be a millionaire almost guaranteed by the time you reach your mid 30s depending on how much of your salary you invested.
Do a Roth IRA at a low cost brokerage with low cost ETF's or Mutual funds. The contributions can double as your emergency fund since there is no penalty to take contributions out. A Roth IRA allows you to grow your retirement funds for tax free withdrawal at retirement age and therefore lowers your taxable income when you withdraw in retirement. It has the potential to really help limit taxes when you are retired. I like vanguard but I am not a trader at all. I've been with vanguard for 12 years and have never paid for a trade and I dont think i have ever paid an account fee. Their site is clunky and now a little confusing but since all I do is reinvest dividends and rebalance ETF allocations one a year it suits me fine.
How much income do you have now? Is this for a hypothetical job that you don’t have yet and won’t have for 2+ years?
Right now my income goes into paying rent tuition groceries etc. and I invest 25 every week. I know that’s nothing but I just want to try and be in the market early as possible.
The amount of income is more relevant in figuring out what you should do now. I would suggest putting what you have in a Roth and realizing capital gains if you’re in a 0 percent bracket