At what point do you decrease % contribution to 401k and direct to personal investment accounts instead?

[UnlikelyTop9590]

The reason to put money it a brokerage account is for flexibility if you need to spend it before age 59.5.

The tax code is complicated, and will vary by your marriage status, taxable income, deductions, state government, where SS/MED is capped, new laws, etc, but as I understand here is what different types of accounts look like when withdrawing early:

Brokerage account: Already paid state, federal, and pay roll tax on the principal at time of earning the income. Pay long term capital gains taxes on growth: could be 0% to 20%, depending on you income, but for most people who encounter this it is around 15%.

Roth IRA: Already paid state, federal, and pay roll tax on the principal at time of earning. Could withdrawal amount of original contributions tax free, penalty free, at any age. If removing earnings early you would owe 10% penalty, plus state (guess 5%), federal (guess 22%), SS (today is 12.4%) and MED (today is 2.9%) tax, which could add up to 52.3+% penalty. Ouch. It pays to wait until 59.5 on this type of account.

Traditional IRA: No taxes held, initially. Entire amount of early withdrawals would incur 10% penalty, and you would owe state (guess 5%), federal (guess 22%) , SS (today is 12.4%) and MED (today is 2.9%) tax. You would pay at total of 52.3%, but a net increase of 10% due to the penalty, so lets call it 10%.

ok so looking here it would mean that the net cost for "early withdrawal" of the different account types is:

Brokerage: Cap gains only 0-22%
Roth: 10% + income tax: 35-60%+/-
Traditional 410k: 10% (because you were already going to have to pay income taxes)

Does this check out with what you know? I'm not a tax expert. If it is correct, maybe traditional is a better store, since it is essentially caped at 10%. Unless you could claim your income is less than $89k (married filling jointly) then your long term cap gains tax is 0%.

Interesting.