Where to invest money for ERE (as in type of account)

[clarky07]

I hope to retire early, far before 59.5 and I'm wondering where everyone here invests. Do you use 401k's, IRA's, and Roth IRA's or just taxable accounts?
I know there are things such as 72(t) that can allow you at some of the money, but mostly it seems like a complicated mess.
Personally my thoughts are to max a Roth at 5k and put the rest in taxable accounts or real estate. Just wondering what everyone else thinks.

[Cashflow]

I was advised to do the following by my financial advisor: contribute the legal maximum to tax-advantaged accounts and put an additional ten percent of my gross income into taxable investment accounts.
After reading the ERE site, I subsequently learned that it's best to put as much of my gross income as possible into savings and investments (after putting the legal maximum into tax-advantaged accounts) by spending as little money as possible.
Fifteen years after following my financial advisor's advice, I was able to retire early (although just barely). I'm now working to increase my margin of safety so that I can live on a two-percent safe withdrawal rate (rather than a four-percent safe withdrawal rate).
I believe the world could get very volatile over the next couple of decades. What may be a two-percent safe withdrawal rate now could turn into a four-percent or six-percent withdrawal rate later if my incomes decline or my expenses increase.
I'm assuming my Social Security benefits will be non-existent. If it turns out that I'm able to collect Social Security after all, then it's found money I never depended on getting.

[KevinW]

The whole 401(k), IRA, Roth, 72(t) landscape is indeed a complicated mess. However the tax savings are quite substantial when you take compounding into account. IMO the savings make the hassle worthwhile. There is a high return on time invested.
However I expect many here will disagree. Two important factors are the length of time you'll be invested before you start withdrawing from your portfolio, and your personal tolerance for paperwork.

[clarky07]

Well, I'm 25 now and hope to be retired by 35. Not a huge amount of time for compounding, but still a pretty decent amount.
I hadn't actually known about the 72(t) loophole until recently, so I just assumed I needed to do much of my investing outside of the tax accounts.

[George the original one]

@clarky07 - not only is there 72(t), but Roth IRA allows you to withdraw your contributions at any time. It's only the earnings that are subject to restrictions.
So... if you're planning on retiring by 35, that implies your savings rate on net income is about 50%. Is that correct?

[clarky07]

Yeah that's correct. Finished paying off my wife's college loans this spring and have been saving right around 50% since then. So far it has just been split between cash savings and a taxable account. Emergency fund will be done shortly and then it's time for decisions on where the money goes.

[JasonB]

If I could make a request, maybe Jacob could do a writeup/blog post on the 72(t) rule. This is the first I've heard of it and sounds like a great loophole.

[Maus]

The 72(t) rule was discussed extensively in How to Withdraw Funds from IRAs before 60 at viewtopic.php?t=103

[jacob]

I think the full answer to this question depends a lot on individual circumstances and also which country one hails from and whether one plans to move to another country.
For ERE it should be no problem maxim out retirement accounts and still contributing substantial amounts of taxable accounts. Retirement accounts become more and more important the less one saves and vice versa.
However, based on current regulations, current net worth, and future savings and spending goals it is possible to do an precise calculation.
The question remains, how accurate will this be? My guess is not very. We still don't know how the dividend tax will change next year, do we?

[Matthew]

Looking at things today, I would say the Roth is the best bet for a low income earner. Higher income earners will also want to max out a 401k for the tax advantage at the top of their higher taxed income.
Taxable accounts are best for being able to fully control your destiny, but as Jacob mentioned, the gov can change tax rules on anything...even our Roth and 401k.

[clarky07]

The potential for changing tax laws is a huge pain. What happens after this year could have a big effect on my decision. As it stands now I would lean heavily towards normal taxable accounts aside from what goes into the 401k from the company. I mostly plan on holding nice dividend payers for the long term, so capital gains aren't a huge concern. With the low divy tax rate the simplicity of taxable accounts is very nice. It also becomes a big emergency fund that I can get to any time I need it.