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Joel wrote..

"Therefore, would it not make some sense to reduce the amount I'm saving towards the 401k and put that with my other investments which I could use to retire earlier than 65. Currently the earliest I could retire is 55, but that means every has to go according to predictions.

Other than the obvious income tax advantage provided by the 401k, what am I forgetting about here"

I am assuming that you are talking about investing outside your 401K after you have max'd your employer's 401K matching.

Once the matching has been max'd there are a couple of consideration for investing outside the 401K.

1. The company 401K does not offer the variety of funds that match your risks.

2. Your AGI is below Roth limits (single is $90,000 I think and $150,000 AGI married file jointly), then you might consider putting $2,000/yr in a Roth IRA and then whatever is left back into the 401K.

3. You want to buy stocks or other investments within a self directed IRA.

The advantage of building the 401K is that if you leave the company after turning 55, you can begin taking funds from the 401K without penalty. If you could roll them over to a traditional IRA, you could do 72t distribution setup to get the funds from the IRA sooner than 55 or 59 1/2 without penalty.

There is also the idea that you aren't real sure that the firm's 401K or the firm you work for is on stable financial ground - then it's best to be handling the funds yourself.

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