The biggest and primary question is how much money you want to live on within retirement. The lower this is, the more options you have available.
You will find that while initially complex, it doesn't take much planning to take complete advantage of the tax system if you are intending to retire early.
Are there any other investment accounts that are geared towards retirement or long term investing and have some perk associated with them (tax deferred, tax exempt) but do not have an age restriction when money can be withdrawn?
I'm going to answer this with some potential alternatives. The US tax system currently is great for people wanting to early retire. If you can save significant money you can optimize your taxes so much over your lifetime!
#401ks and IRAs
If you retire early and have money invested in a Roth IRA or a traditional 401k, that money can't be touched without penalty until you're 55/59. (Let's ignore Roth contributions that can technically be withdrawn)
Ok, the 401k myth. The "I'm hosed if I put money into it since it's stuck" perspective isn't true for a variety of reasons.
If you retire early you get a long amount of time to take advantage of retirement accounts. One way is to primarily contribute to pretax 401k during working years. After retiring, begin converting this at a very low tax rate. You can convert money in a traditional IRA whenever you want to be Roth. You just pay your marginal tax rate which.... for an early retiree might be 0%. Then after 5 years - you now have a chunk of principle that has become Roth principle - and can be withdrawn whenever.
Let's imagine you retire at 40 with 100k in your 401k (pretax). For 5 years, you convert $20k (assuming married). Because we get $20k between exemptions/deduction it means you pay $0 taxes every year while converting $20k of your pretax IRA to Roth. Or if you have kids, even more. After 5 years you now can withdraw that 20k/year 100% tax free since it has become principle. This is only a good idea when you are retired early because you are able to fill up all your "free" income for tax conversions. When you are working you would be paying your marginal rate. But your marginal rate in retirement is... 0%.
Related thread on a forum you might enjoy. This is sometimes called a Roth pipeline.
Basically: assuming you have no income while retired early you can fairly simply convert traditional IRA money into Roth principle. This is then accessible to you well before the 55/59 age but you get the full benefit of the pretax money.
But let's pretend you don't want to do that. You need the money (and tax benefit!) now! How beneficial is it to do traditional 401ks?
Imagine you live in a state/city where you are paying 25% marginal tax rate. If your expected marginal rate in your early retirement is 10-15% you are still better off putting money into your 401k and just paying the 10% penalty on an early withdrawal. In many cases, for high earners, this can actually still be a tax benefit overall.
The point is this: just because you have to "work" to get money out of a 401k early does NOT mean you lose the tax benefits of it. In fact, current tax code really does let an early retiree have their cake and eat it too when it comes to the Roth/traditional 401k/IRA question.
#Taxable accounts
Are you limited to a generic taxable brokerage account?
Currently, a huge perk for those with small incomes is that long term capital gains are taxed based on your current federal tax bracket. If your federal marginal rate is 15% or less you will pay nothing for long term capital gains, until this income pushes you into the 25% federal bracket.
This might change, but right now means you can capture many capital gains without paying taxes on them. This is huge for early retirees who can manipulate income. You can have significant "income" and not pay taxes on it.
You can also stack this with before mentioned Roth conversions. Convert traditional IRA money until you would begin owing any federal taxes, then capture long term capital gains until you would pay tax on those. Combined this can represent a huge amount of money per year.
#HSAs
So littleadv mentioned HSAs but.. for an early retiree they can be ridiculously good.
- You can invest them
- You pay no FICA (for employer plans, sorry self employed people!)
- You can withdraw medical expenses whenever. Not only the year of contribution (like FSAs)
- At age 65 effectively turns into IRA (except the FICA benefit remains)
What this means is you can invest the maximum into your HSA for 10 years, let it grow 100% tax free, and save all your medical receipts/etc. Then in 10 years start withdrawing that money.
While it sucks healthcare costs so much in America, you might as well take advantage of the tax opportunities to make it suck slightly less.
Related Resources
There are many online communities dedicated to learning and optimizing their lives in order to achieve early retirement. The question you are asking can be answered superficially in the above, but for a comprehensive plan you might want other resources.
Some you might enjoy:
