401(k)'s and other retirement accounts have limits on restrictions on when your money can be withdrawn. But let's say I score a job making a huge sum, can save a lot, and want to retire decades early. I'm aware that there are yearly contribution limits for 401(k)s and IRAs, and I am also aware a reason for contributing to a 401(k) would be a company match.

Disregarding those facts, why wouldn't I want to open a standard brokerage account and invest as much of my money as I want as I see fit? The expense ratios would likely be lower, and while there would likely be trading fees, I plan to invest, rather than actively trade.

  • 2
    For the same reason you'd choose car over apple pie. These are unrelated things.
    – littleadv
    Commented Sep 30, 2014 at 19:09
  • Your question title suggests you are viewing the choice as an either/or (IRA "over" standard brokerage), but the body of the question suggests you're just asking why you might open a brokerage account at all (perhaps in addition to an IRA). Can you clarify your intent? Are you asking why you would open an IRA instead of a brokerage account, or why you would open an IRA at all?
    – BrenBarn
    Commented Sep 30, 2014 at 20:22
  • Possible duplicate of money.stackexchange.com/questions/36250/…
    – user102008
    Commented Oct 2, 2014 at 10:12

4 Answers 4


It is not an either/or decision. If you "want to retire decades early", then you will need to have a taxable account anyway, as you won't be able to stuff enough money into the tax-advantaged accounts to meet that goal.

And if you are "making a huge sum", then you will be in a high tax bracket and so the tax advantages of saving into a 401K or IRA will be substantial.

So, max out your 401K/IRA, and then save the rest into the taxable brokerage account. When you retire at 39, live off your taxable account until you are old enough to tap the other ones without penalty.

Unless you plan to die decades early, as well as retire decades early. In that case, you can bypass the 401K/IRA.

  • Sec 72(t). It's how to retire at any age with no penalty on withdrawals. Commented Oct 1, 2014 at 2:10
  • But if you plan on dying decades early, could you convince the IRS (or the annuity people) of that? And if you plan to live to a ripe old age, why not spend the taxable money first and save on the paper work?
    – jjanes
    Commented Oct 1, 2014 at 3:15
  • Probably not. You should read the rules for Sec 72(t). As I often say, personal finance is personal. So it depends on the individual's exact numbers. When I retired at 50, nearly all my savings were pre-tax. The missus was 55+ so retirement started with her 401(k). Else, I'd have used 72t. Commented Oct 1, 2014 at 14:25

The primary advantage of an IRA or 401k is you get taxed effectively one time on the money (when you contribute for Roth, or when you withdraw for Traditional), whereas you get taxed effectively multiple times on some of the money in a taxable account (on all the money when you contribute, plus on the earnings part when you withdraw).

Of course, you have to be able to withdraw without penalty for it to be optimally advantageous. And you said you want to retire decades early, so that is probably not retirement age. However, withdrawing early does not necessarily mean you have a penalty. For example: you can withdraw contributions to a Roth IRA at any time without tax or penalty; Roth 401k can be rolled over into Roth IRA; other types of accounts can be converted to Roth IRA and the principal of the conversion can be withdrawn after 5 years without penalty.


Retirement accounts often can be invested with pretax money, with the exception of Roth accounts that use post-tax and have tax-free growth if you follow the rules, rather than after tax money as well as provide a shelter so that you aren't having to pay annual taxes on dividends and other possible distributions.

Another point would be to consider how much money you'd be investing as some funds may have institutional versions that can be much cheaper than others, e.g. compare Vanguard's index funds that the 500 Index in Investor shares, Admiral shares and institutional forms where the tickers would be VFINX, VFIAX, VINIX, VIIIX to consider. Some companies may have access to the institutional funds that aren't what you'd have unless you are investing millions of dollars upfront.

Lastly, if there isn't an employer plan and you make a ton of cash, you may not qualify for a deductible IRA or Roth IRA contribution for something else that may happen if you want to start playing with, "What if."


All other things being equal, you might be better off contributing to a IRA that is a brokerage account. You will have lots of flexibility in your investments and there would probably not be fees for the account itself. You might incur commissions for trading and/or owning mutual funds that are charged by the funds themselves.

You won't be able to borrow from an IRA, as opposed to a 401K. IMHO, that is a good thing.

Are you suggesting that you would withdraw early from a retirement account? You'd probably be better off not doing that. Assuming a large salary, you would be paying 43% to withdraw your money early. Would you accept a loan at 43% interest?

You are probably better off not putting the money in in the first place to accomplish your goals, then withdrawing it early.

Most people opt for a 401K for two reasons. The company match and ease of investment make a compelling argument. Keep in mind if a 401K is available to you, regardless if you particpate, you start phasing out your IRA deduction at 60K a year (single) or 96K (married). Given your huge salary comments I imagine an IRA would not be an option in your scenario.

Given that, if you leave a job, you can roll your 401K balance into a trading account.

  • He is asking 401k/IRA vs Brokerage not 401k vs IRA.
    – Matt R
    Commented Sep 30, 2014 at 17:41

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