The 3 Best Retirement Accounts to Have if You Plan to Retire Early

You'll need to overcome many obstacles to retire early, including the federal government's rules about retirement account withdrawals. Typically, you'll face an early-withdrawal penalty if you take money out of your retirement accounts before you're 59 1/2. There are exceptions, but most require a qualifying reason, like a large medical expense.

However, three retirement accounts have special rules that could permit you to access your savings early and penalty-free.

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1. Roth IRA

Workers fund their Roth IRAs with after-tax dollars. That means you pay taxes on your contributions in the year you make them, in contrast to traditional IRAs, which give you an upfront tax break in the year you contribute the funds. That's an advantage for a Roth when it comes to later withdrawals. Since you already paid taxes on your contributions, you're allowed to withdraw them tax- and penalty-free at any time.

The same can't be said of your earnings, though. You must wait until you're at least 59 1/2 and have had the account for at least five years before you can touch those funds tax-free.

In 2024, you can set aside up to $7,000 in a Roth IRA, or $8,000 if you're 50 or older. This annual limit applies to all of your IRAs in total, so you can't stash $7,000 in a Roth IRA this year and another $7,000 in a traditional IRA. It's also a good idea to verify that you're eligible to contribute to a Roth IRA before putting any money into one.

2. Roth 401(k)

This account offers the best features of a 401(k) and a Roth IRA in one. You get the high contribution limits of 401(k)s -- $23,000 in 2024 if you're under 50 or $30,000 if you're 50 or older -- and the opportunity to earn employer-matching funds if your company offers them. But your contributions are after-tax dollars.

This account doesn't actually let you take penalty-free withdrawals. But you could roll your Roth 401(k) funds over into a Roth IRA, after which you should be able to withdraw contributions penalty-free as long as you've had a Roth account for at least five years. You'll likely pay a one-time fee to complete the rollover.

It's important to note that if you got an employer match to your Roth 401(k), these matching funds are pre-tax dollars, so they'll go into a traditional 401(k), not your Roth 401(k). You won't be able to access these funds before 59 1/2 without a penalty unless you take advantage of the following rule.

3. Traditional 401(k)

Traditional 401(k)s are funded with pre-tax dollars, so you will owe taxes when you make withdrawals, plus the 10% early-withdrawal penalty if you're under 59 1/2. But there is a little-known exception to that age restriction known as the Rule of 55 that could grant you penalty-free access to some of your 401(k) funds as soon as the year you turn 55 (or 50 if you're a public service employee).

Under this rule, you're allowed to make penalty-free withdrawals, but only from your most recent employer's 401(k). There's no limit as to how much you can withdraw each year, but larger withdrawals will bring larger tax bills. This could be a great option for those who plan to retire in their mid- to late-50s but lack Roth accounts.

It's also possible to use a combination of these accounts if that suits you better. Just make sure you follow all of their rules so you don't cost yourself money in avoidable penalties.

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