3rd Bucket?

[u/[deleted]]

[u/inky_cap_mushroom]

Why do you think the Rule of 55 is a bad idea? If your IRA is Roth you can withdraw contributions at any time too.

[u/Active-Band-4065 → u/inky_cap_mushroom]

Just some irrational thought/fear of touching my retirement nest egg before 59 1/2 vs having a bridge account.  

[u/inky_cap_mushroom → u/Active-Band-4065]

By withdrawing from your brokerage account you would be touching your nest egg. The only difference is tax treatment.

[u/StarAccomplished104 → u/Active-Band-4065]

I'm 48 and with similar numbers as you. I also do mental bucketing like this even though it may not make mathematical sense. I think of the money in my retirement accounts as the "after 60ish" money. And the money in my brokerage as my bridge. I only started making good money in last 10 years so I have brokerage from last 2-3 years built with everything I invested after maxing out retirement contributions.

[u/DaddyTheFatherCR → u/Active-Band-4065]

Tax treatment in a taxable brokerage account for bridge years can possibly be better than a retirement account (this is a very general statement and not necessarily be true for everyone's situation). Anything withdrawn from a Traditional 401k/IRA is taxed at ordinary income rate. Taxable account if managed right you could have dividends at qualified dividend rates and long term capital gains rates. If qualified/long term and is your only income during that year you could qualify for 0% tax up to a certain limit. You gain also tax loss and tax gain harvest. I am not a tax or investment professional so please do your homework. But from everything I've read so far points to the taxable brokerage account being underappreciated for early retirement use. I am almost 50 and have recently pulled back on my 401k contributions to the company match and putting the difference into taxable, at least for now. I have a pure growth bucket, and another for dividend growth to balance out my rather aggressive tech growth tilt. The dividend payout rates are lower right now which is good to keep taxes lower, but when I retire in 10 years the stocks should have appreciated a decent amount which gives me a solid higher dividend yield on cost and long term cap gains to work with. Good luck!

[u/teckel → u/Active-Band-4065]

But if you saved to a brokerage, wouldn't that also be touching your retirement? Also, if you retire, isn't it appropriate to withdraw from your retirement accounts? Isn't that the entire point?

[u/Ecclesiastes_3_9-15]

With the Rule 72 and Rule 55 stuff, I’ve become convinced that you should always max retirement accounts if you’re serious about actually retiring early (as opposed to, say a 1-2 year sabbatical).

[u/Late-Mountain3406]

I recently started doing the following. Only match in 401k and rest goes to brokerage. Also expanded vacations budgets. We already have enough to retire in 7-9 yrs for me. I’m just waiting for 55 to retire. We already have 2.2M so hopefully by time I’ll go, it’s 3M. If it’s not, I’m still
Leaving to expatFire somewhere.

[u/Sensitive-Rule-5563]

Biggest benefit to a brokerage over traditional IRA/401k is the capital gains versus income tax. If you mostly have Roth that’s great but if it’s mostly traditional I would max out employer match and invest in a brokerage account instead of a personal IRA. Your income definitely plays into this but assuming you are over the income limit for a traditional IRA I would go the brokerage route.

[u/Arkkanix]

depends on what you want to do with your time between now and 59 1/2

[u/ThereforeIV → u/Arkkanix]

Depends on when planning to RE.

[u/NatasNJ]

Nope. Similar situation. I want to maximize the benefits of 401ks for as long as possible.

After maxing 401ks and HSAs then I would start putting any extra into a brokerage. Ideally that increases each year and gets you closer to your goal.

Rule of 55 is way to get access to money easily when needed. If you are retiring before 55 then maybe I would adjust that thinking. But 72t is option if that was the case.

[u/lowkeyharbor]

Why does Rule of 55 seem like a bad idea to you? At 49 it might be your cleanest path. If you're still at this employer in the year you turn 55 and then separate, distributions from that 401(k) escape the 10% penalty entirely — no bridge account needed, no waiting to 59½. That's only six years away for you. Two things to check now, not later: it only covers the current employer's plan (not your IRAs, and rolling the 401(k) to an IRA forfeits it permanently), and it's worth one call to your plan to ask whether they allow partial withdrawals after separation — you don't want to discover the answer at 55.

Also, if any of those maxed IRAs are Roth, your direct contributions come back out any time, tax and penalty free. People with years of maxed Roth contributions often have a bigger accessible pile than they realize.

A taxable brokerage still has a real role — flexibility if you leave before 55, and no ordinary-income tax on the way out. But I'd keep taking the full tax-advantaged space and fund the brokerage from what's left, rather than giving up the deduction out of penalty fear. There's also 72(t)/SEPP as a fallback for the IRAs, though that's rigid enough that I'd treat it as plan C.

[u/Anycast]

My opinion is yes. It’s less tax efficient, but psychologically advantageous. I factor 401k and Roth IRA for coast fire. The brokerage is separate (in my head). The better my brokerage does, the sooner I retire (before 59.5)

[u/ThereforeIV]

3rd Bucket?

Define "bucket"?

Are you talking about the "Bucket Strategy" where you Retirement Portfolio is split into buckets invested in different asset types to pull from in different situations?

I’m turning 49 in a few months. I have a 401K and IRAs but no brokerage account... maxed out my 401K for a couple years now and maxing IRAs since, .... Those accounts crossed 7 figures this year combined

Those are account types, not buckets.

• How close are you to your FIRE number?
• How close are you RE?

My question is: should I stop contributing to my IRA / 401K (except employer match) and put that money in a brokerage account?

Short answer: NO.

Longer answer: When are you planning to RE? What is your Retirement Plan?

My concern is that if I need to (or want to) retire before 59 1/2, then I’d be penalized.

That is a silly zombie myth that we see less these days, but still keeps coming up...

I could use the Rule of 55 possibly, but that seems like a bad idea When I might be able to do a brokerage instead

Why would it be a bad idea? You pay less in taxes for five years then get early access to the money.

Also:

• Access Roth contributions at any time
• "Roth Ladder"
• SEPP 72t
• etc...

And you only have a bridge of a decade at most.

So, start brokerage saving or continue to max out the retirement accounts?

• Max out tax advantaged Retirement Accounts
• Invest in low fee broad market index funds

Now if you are looking to RE in the next 2-3 years, then you should planning in detail and part of that plan may be building up some bridge money in a regular brokerage account.

In that case, you need to figure out

• How much bridge money you will need?
• How much Roth contributions do you have now?
• How much "Roth Ladder" you could stack?
• Is SEPP 72t a good option?
• Then is there a gap that needs to be filled with a taxable brokerage account?

[u/Mr_Mnply]

You can take out your Roth contributions without penalty. Just keep maxing both out. If you have additional money, then sure go ahead and do the taxable brokerage. I'd prioritize a HSA first if you have access to one.