Like I mentioned in yesterday’s post, Girl Ninja and I recently took $14,000 out of our savings account and transferred it to a taxable investment account. Many of you were curious as to why we would do such a thing considering we only contribute to one Roth each year (instead of two) and I don’t max out my 401k. Here was a reader question from that post:

What is your rationale of investing in brokerage accounts prior to maxing out both Roth IRA’s? I’m new to figuring out my investment plan but the way I see it Roth IRA’s are the best of both worlds. You can still have your contributions available for withdrawal if you’d like to spend it in the future. But gains are allowed to accumulate tax-free. I figured the gains will be minimal for the first few years that I wouldn’t really “need” to use it but I’d be slowly gaining wealth.

It’s a fair question and a perfect example of how “PERSONAL” personal finance can be. What makes sense to one person, might seem silly to another.

If you didn’t already know, here is how we do things: 

    • Contribute 10% to my 401k (employer matches 5%)
    • Girl Ninja contributes 5% to her 403b (employer matches 5%)
    • Max out my Roth IRA ($5,500 this year)
    • Put any additional funds in to my taxable investment account (hence the $14,000 contribution)

Just because I do things this way, doesn’t necessarily mean you should too.

Max out your 401k(s) first:

Sam, over at Financial Samurai, sings a different tune. He’s all about maximizing one’s 401k contributions, up to the $17,500 threshold, then investing in a traditional IRA up to the max. He is not shy about hating on the Roth IRA.

Max out your Roth(s) first:

The commenter above, it seems, believes in the Roth IRA. He wants us to throw another $5,500 at a Roth for girl ninja. Then, if we needed to down the road, pull money out of our Roth for a second house or kids’ college tuition.

Sure I can pull my Roth contributions out at any time without penalty to pay for college, but that would be silly. Withdrawing $50,000 from my Roth at age 40 would deal a huge blow to my accounts ability to compound. That $50,000 withdrawal could easily end up costing me $150,000 or more in lost gains. No thanks. Retirement accounts are for retirement.

I don’t follow either of these practices for one simple reason. 

I’m scared of OVER investing in our retirement accounts. 

Yes, I just used the term “over investing”.

The Math: 

Let’s assume we earn an average 9% return on investment over the next 40 years (historical average is more like 11%). We’ll knock off 3% to account for inflation, so let’s call it a 6% ROI.

If I maxed out my 401k every year for the next 35 years, I’d end up with $4.1 million waiting for me at age 62.

401k max

If I followed my blog readers advice, and stuck to 10% in my 401k but then maxed out BOTH mine and my wife’s Roths, we’d end up with $1.6 million in Roths, and $2.4 million in my 401k. In other words, a total retirement portfolio of about $4,000,000.

Sounds freaking wonderful doesn’t it? 

But why the crap would I want $4,000,000 waiting for me in my 60’s? I mean, my cost of living will almost certainly be lower by that age. All of my children will be grown and out of the house and we should no longer have a mortgage payment.

Imagine how little you would need to make today if you didn’t have to pay rent or a mortgage. Now add a few million to your net worth. You’d literally have more cash than you knew what to do with. 

  • Maxing out our Roths and 401ks does very little to help our 40-year-old selves.

You’ll probably say I’m wrong, but I think we’re already doing enough when it comes to retirement. Using the same 6% ROI above, we’re looking at having about $3.3 million in our retirement accounts. Sure, its $700,000 to $1,000,000 less than if we followed the advice above, but need I remind you, IT’S STILL THREE MILLION DOLLARS. 

I’ve got 60-year-old me covered. Our new taxable investment account will serve as a means to get 45-year-old-Me equally on point.


Remember, you gotta be thinking about ALL stages of life, not just the last stage.


It really comes down to a simple question:

Would you rather go hard investing in your retirement accounts and have $5,000,000 waiting for you at age 60, or mix things up and have $1,000,000 waiting for you at 45, and $2,500,000 waiting for you at age 60? 

I’m picking the latter every time, even if it means my retirement account balances are halved.

p.s. I should also note that as a federal employee I will have access to a pension come retirement to further supplement my income. Around $30k/yr.

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