Allocation between 401K/retirement accounts and taxable investments, as a young adult?
I'm afraid you're mistaking 401k as an investment vehicle. It's not. It is a vehicle for retirement. Roth 401k/IRA has the benefit of tax free distributions at retirement, and as long as you're in the low tax bracket - it is for your benefit to take advantage of that. However, that is not the money you would be using to start a business or buy a home (except for maybe up to $10K you can withdraw without penalty for first time home buyers, but I wouldn't bother with $10k, if that's what will help you buying a house - maybe you shouldn't be buying at all). In addition, you should make sure you take advantage of the employer 401k match in full. That is free money added to your Traditional 401k retirement savings (taxed at distribution). Once you took the full advantage of the employer's match, and contributed as much as you consider necessary for your retirement above that (there are various retirement calculators on line that can help you in making that determination), everything else will probably go to taxable (regular) savings/investments. I would say yes, it makes sense to keep some money in taxable accounts.  Retirement accounts are for retirement, and the various early withdrawal penalties are designed to enforce that.  If you're anticipating using the money before retirement (e.g., for home purchase), it makes sense to keep it out of retirement accounts. On the other hand, be aware that, regardless of what kind of account it is in, you face the usual risk/return tradeoff.  If you put your money in the S&P 500 and the S&P 500 tanks just before you were going to buy a house, your down payment evaporates and you will have to wait and buy a house later.  You can manage this by shifting the allocation of this money and perhaps cashing it out if a certain amount is gained (i.e., it grows to the level of your target down payment) and you are close enough to the house purchase time that you don't want to risk it anymore. Basically, if you invest money for a pre-retirement use, you may want to keep it in a taxable account, but you also need to take account of when you'll need it and manage the risk accordingly. First off, great job on your finances so far. You are off on the right foot and have some sense of planning for the future.  Also, it is a great question.   First, I agree with @littleadv. Take advantage of your employer match. Do not drop your 401(k) contributions below that. Also, good job on putting your contributions into the Roth account. Second, I would ask: Are you out of debt?  If not, put all your extra income towards paying off debt, and then you can work your plan. Third, time to do some math.  What will your business look like?  How much capital would you need to get started?  Are there things you can do now on a part-time basis to start this business or prepare you to start the business? Come up with a figure, find some mutual funds that have a low beta, and back out how much money you need to save per month, so you have around that total.  Then you have a figure. e.g. Assume you need $20,000, and you find a fund that has done 8% over the past 20 years.  Then, you would need to save about $110/month to be ready to go in 10 years, or $273/month to go in about 5 years.  (It's a time value of money calculation.) The house is really a long way off, but you could do the same kind of calculation.  I feel that you think your income, and possibly locale, will change dramatically over the next few years.  It might not be bad to double what you are saving for the business, and designate one half for the house.
Kudos to you on having money in a retirement account as early as after college.  Many people don't start investing towards retirement until far to late and compound interest makes a major difference in those early years. Ideally, neither withdraw nor borrow from these accounts.  Withdrawing from your 403b will incur a 10% penalty unless you are over the minimum age on top of the normal tax on that income.  With a 401K loan you're putting yourself at risk if you run into a situation where you can't pay the loan back of incurring the same penalties as an early withdrawal.  This article covers the concerns well. In general, you want to view your retirement money as untouchable until the distributions need to start coming in retirement.  It's your future in there. Of course, this doesn't help the short term cash need.  Do you have money in an emergency fund somewhere?  Could a relative loan you money?  Can you move to a less expensive place in advance and squirrel away some of what would have been your rent cash?  Can you cut back to bare necessities and do the same?  Do you have some nice stuff sitting around that you could sell to make up that needed cash?  Will your current employer pay out unused vacation or are you getting any severance from this situation?  Will you qualify for unemployment? I other words, think about what you would do to get the money if your retirement accounts weren't there.  Then do that - as long as it's legal and doesn't involve running up debt on high interest lines of credit - instead of borrowing against your future. "Your retirement PLAN is a lifelong plan and shouldn't be tied to your employer status. Max out your 401(k) contribution to the maximum that your employer matches (that's a 100% ROI!) and as much as you can afford. When you leave the work force rollover your 401(k) to an IRA account (e.g.: you can create an IRA account with any of the online brokerage firms Schwab, E-Trade, Sharebuilder, or go with a brick-and-mortar firm like JP Morgan, Stifel Nicolaus, etc.). You should have a plan: How much money do you need/month for your expenses? Accounting for inflation, how much is that going to be at retirement (whatever age you plan to retire)? How much money do you need to have so that 4.5% of that money will provide for your annual living expenses? That's your target retirement amount of savings. Now figure out how to get to that target. Rule #1 Invest early and invest often! The more money you can sock away early in your career the more time that money has to grow. If you aren't comfortable allocating your investments yourself then you could go with a Targeted Retirement Fund. These funds have a general ""date"" for retirement and the assets are allocated as appropriate for the amount of risk appropriate for the time to retirement." A 401K (pre-tax or Roth) account or an IRA (Deductible or Roth) account is a retirement account. Which means you delay paying taxes now on your deposits, or you avoid paying taxes on your earnings later.  But a retirement account doesn't  perform any different than any other account year-to-year. Being a retirement account doesn't  dictate a type of investment. You can invest in a certificate of deposit that is guaranteed to make x% this year; or you can invest in stocks, bonds, mutual funds that infest in stocks or bonds. Those stocks and bonds can be growth focused, or income focused; they can be from large companies or small companies; US companies or international companies. Or whatever mix you want. The graph in your question shows that if you invest early in your adulthood, and keep investing, and you make the average return you should make more money than starting later. But a couple of notes:  So to your exact questions: An S&P 500 investment should perform exactly the same this year if it is in a 401K, IRA, or taxable account With a few exceptions:  Yes any investment can lose money. The last 6 months have been volatile and the last month and a half especially so. A retirement account isn't any different. An investment in mutual fund X in a retirement account is just as depressed a one in the same fund but from a taxable account. The stock market at large has about a 4.5% long-term real-real (inflation-fees-etc-adjusted) rate of return. Yes: even in light of the recent crashes. That means your money invested in stocks doubles every 16 years. So savings when you're 25 and right out of college are worth double what savings are worth when you're 41, and four times what they're worth when you're 57. You're probably going to be making more money when you're 41, but are you really going to be making two times as much? (In real terms?) And at 57, will you be making four times as much? And if you haven't been saving at all in your life, do you think you're going to be able to start, and make the sacrifices in your lifestyle that you may need? And will you save enough in 10 years to live for another 20-30 years after retirement? And what if the economy tanks (again) and your company goes under and you're out of a job when you turn 58? Having tons of money at retirement isn't the only worthy goal you can pursue with your money (ask anyone who saves money to send kids to college), but having some money at retirement is a rather important goal, and you're much more at risk of saving too little than you are of saving too much. In the US, most retirement planners suggest 10-15% as a good savings rate. Coincidentally, the standard US 401(k) plan provides a tax-deferred vehicle for you to put away up to 15% of your income for retirement.  If you can save 15% from the age of 20-something onward, you probably will be at least as well-off when you retire as you are during the rest of your life. That means you can spend the rest on things which are meaningful to you. (Well, you should also keep around some cash in case of emergencies or sudden unemployment, and it's never a good idea to waste money, but your responsibilities to your future have at least been satisfied.) And in the UK you get tax relief on your pension contribution at your income tax rate and most employers will match your contributions. This is a purely numerical statement that you should be able to check (and you CPA friend should be able to prove, if true).  The general advice, I think, is that you should not use your retirement funds this way, but general advice does not apply equally well to everyone.   You didn't give enough information for us to compute the answer, so you're on your own there.  If you do this (or have the CPA do it), make sure that it accounts for all pluses and minuses that you'll have.  On the minus side, you get any direct penalties in addition to potential loss of right to contribute for a period of time, so make sure you consider both aspects, especially to any degree that you would lose an employer contribution or match.  Also consider the fact that the money already in is tax advantaged, and you won't be able to replace that amount later.  So there will be a compounding effect to what was lost. (This may or may not be balanced by a mortgage interest deduction down the road - My guess is that it will not, but, again, the details of your situation may dictate a different path.  The mortgage interest deduction decreases each year as you pay more principal whereas the compounding from being tax deferred tends to increase each year.) Even ignoring the match (which makes it like a non-deductible IRA), the 401k plans that I know all have a range of choices of investment.  Can you find one that is part of the portfolio that you want?  For example, do you want to own some S&P500 index fund?  That must be an option.  If so, do the 401k and make your other investments react to it-reduce the proportion of S&P500 because of it(remember that the values in the 401k are pretax, so only count 60%-70% in asset allocation).  The tax deferral is huge over time.  For starters, you get to invest the 30-40% you would have paid as taxes now.  Yes, you will pay that in taxes on withdrawal, but any return you generate is (60%-70%) yours to keep.  The same happens for your returns. When you are a certain age you will be able to tap into your retirement accounts, or start receiving pension and social security funds. In addition you may be faced with required minimum distributions from these accounts.  But even before you get to those points you will generally shift the focus of new funds into the retirement account to be more conservative. Depending on the balances in the various accounts and the size of the pension and social security accounts you may even move invested funds from aggressive to conservative investments. The proper proportion of the many different types of investments and revenue streams is open to much debate. During retirement you will be pulling money out of retirement accounts either to support your standard of living or to meet the required minimum distributions. What to sell will be based on either the tax implications or the required distributions that will still maintain the asset allocation you desire.   If your distributions are driven by the law you will be selling enough to meet a specific required $ figure. You will either spend that money or move it into a low interest savings account or a non-retirement investment account. If trying to meet your standard of living expectations you will be selling funds that allow you to keep your desired asset allocation but still have enough to live on. Again you will be trying to meet a specific $ figure.  Of course you may decide at anytime in retirement to rebalance based on changes to your lifestyle, family obligations, or winning the lottery. "I can't find a decent duplicate, so here are some general guidelines: First of all by ""stocks"" the answers generally mean ""equities"" which could be either single stocks or mutual funds that consist of stocks. Unless you have lots of experience that can help you discern good stocks from bad, investing in mutual funds reduces the risk considerably. If you want to fine-tune the plan, you can weigh certain categories higher to change your risk/return profile (e.g. equity funds will have higher returns and risk than fixed income (bond) funds, so if you want to take a little more risk you can put more in equity funds and less in fixed income funds). Lastly, don't stress too much over the individual investments.  The most important thing is that you get as much company match as you can.  You cannot beat the 100% return that comes from a company match. The allocation is mostly insignificant compared to that.  Plus you can probably change your allocation later easily and cheaply if you don't like it. Disclaimer:  these are _general_ guidelines for 401(k) investing in general and not personal advice." Personally, I do asset allocation separately for personal investing and for retirement investing, as I the two have vastly different purposes and I have vastly different goals for each. YMMV depending on how you view your non-retirement investments, and how close you are to retirement. Congratulations on deciding to save for retirement. Since you cite Dave Ramsey as the source of your 15% number, what does he have to say about where to invest the money? If you want to have instantaneous penalty-free access to  your retirement money, all you need to do is set up one or more ordinary accounts that you think of  as your retirement money. Just be careful not to  put the money into CDs since Federal law requires a penalty of three months interest if you cash in the CD before its maturity date (penalty!) or put the money into those pesky mutual funds that charge a redemption fee (penalty!) if you take the money out within x months of investing it where x can be anywhere from 3 to 24 or more. In Federal tax law (and in most state tax laws as well) a retirement account has special privileges accorded to it in that the interest, dividends, capital gains, etc earned on the money in your retirement account are not taxed in the year earned (as they would be in a non-retirement account), but the tax is  either deferred till you withdraw money from the  account (Traditional IRAs, 401ks etc) or is waived completely (Roth IRAs, Roth 401ks etc). In return for this special treatment, penalties are imposed (in addition to tax) if you withdraw money from your retirement account before age 59.5 which presumably is on the distant horizon for you. (There are some exceptions (including first-time home buying and extraordinary medical expenses) to this rule that I won't bother going into). But You are not required to invest your retirement   money into such a specially privileged retirement   account. It is perfectly legal to keep your retirement money   in an ordinary savings account if you wish, and pay taxes on the   interest each year.  You can invest your retirement   money into municipal bonds whose interest is free of   Federal tax (and usually free of state tax as well   if the municipality is located in your state of   residence) if you like. You can keep your retirement money in a   sock under your mattress if you like, or buy a   collectible item (e.g. a painting) with it   (this is not permitted in an IRA), etc. In short, if you are concerned about the penalties imposed by retirement accounts on early withdrawals, forgo the benefits of these accounts and put your retirement money elsewhere where there is no penalty for instant access.  If you use a money management program such as Mint or Quicken, all you need to do is name one or more accounts or a portfolio as MyRetirementMoney and voila, it is done. But those accounts/portfolios don't have to be retirement accounts in the sense of tax law; they can be anything at all. There are not as many options here as you fear. If you have no other investments outside this 401K it is even easier. Outside accounts include IRA, Roth IRA, taxable investments (mutual funds, ETF, individual stocks), Employee stock purchase plans. Amount: make sure you put enough in to get all the company match. I assume that in your case the 9% will do so, but check your documents. The company match will be with pre-tax funds.  Roth vs Regular 401K? Most people in their lifetime will need a mix of Roth and Regular retirement accounts. You need to determine if it is better for you to pay the tax on your contributions now or later. Which accounts? If you are going to invest in a target date fund, you can ignore the rest of the options. The target date fund is a mixture of investments that will change over the decades. Calculate which one fits your expected retirement date and go with it. If you want to be able to control the mix, then you will need to pick several funds. The selection depends on what non-401K investments you have. Now here is what I considered the best advice.  Decide Roth or regular, and just put the money into the most appropriate target date fund with the Roth/regular split you want. Then after the money starts flowing into your account, research the funds involved, the fees for those funds, and how you want to invest. Then move the money into the funds you want. Don't waste another day deciding how to invest. Just get started. The best part of a 401K, besides the match, is that you can move money between funds without worrying about taxes. If you realize that you want to put extra emphasis on the foreign stocks, or Mid-cap; just move the funds and redirect future contributions. "This is actually (to me) an interesting point to note.  While the answer is ""that's what Congress wrote,"" there are implications to note. First, for many, the goal of tax deferral is to shift 25% or 28% income to 15% income at retirement. With long term gains at 15%, simply investing long term post tax can accomplish a similar goal, where all gain is taxed at 15%.  Looking at this from another angle, an IRA (or 401(k) for that matter) effectively turns long term gains into ordinary income.  It's a good observation, and shouldn't be ignored." The biggest challenge as a young person maxing out a 401k in my opinion is the challenge of saving for a house, and (if necessary) paying off student loans. You have to consider - are you OK renting for the next 3, 5, 10 years? Or do you eventually want to buy a place? how much will that cost vs your current expenses?  That being said, I didn't max out but had over 8-10% of 401k contribution in the same situation you're in right now and I don't regret it.  Rereading your question, I see you are considering investing in a Roth IRA. Especially at your current age, assuming your wages will go UP, investing to the company match with the 401K and then maxing out a Roth IRA would be my recommendation. THEN continue maxing out the 401k (if you wish).  P.S. I highly recommend doing two things if you go down this path: I would open a taxable account with the same custodian that manages your Roth IRA (e.g., Vanguard, Fidelity, etc.). Then within the taxable account I would invest the extra money in low cost, broad market index funds that are tax efficient. Unlike in your 401(k) and Roth IRA, you will now have tax implications if your funds produce dividends or realize a capital gain. That is why tax-efficient funds are important to minimize this as much as possible.  The 3-fund portfolio is a popular choice for taxable accounts because of simplicity and the tax efficiency of broad market index funds that are part of the three fund portfolio. The 3-fund portfolio normally consists of Depending on your tax bracket you may want to consider municipal bonds in your taxable instead of taxable bonds if your tax bracket is 25% or higher.  Another option is to forgo bonds altogether in the taxable account and just hold bonds in retirement accounts while keeping tax efficient domestic and international tock funds in your taxable account. Then adjust the bond portion upward in your retirement accounts to account for the additional stocks in your taxable accounts. This will maintain the asset allocation that you've already chosen that is appropriate for your age and goals. "While I can appreciate you're coming from a strongly held philosophy, I disagree strongly with it.  I do not have any 401k or IRA I don't like that you need to rely on government and keep the money there forever. A 401k and an IRA allows you to work within the IRS rules to allow your gains to grow tax free. Additionally, traditional 401ks and IRAs allow you to deduct income from your taxes, meaning you pay less taxes. Missing out on these benefits because the rules that established them were created by the IRS is very very misguided. Do you refuse to drive a car because you philosophically disagree with speed limits?  I am planning on spending 20k on a new car (paying cash) Paying cash for a new car when you can very likely finance it for under 2% means you are loosing the opportunity to invest that money which can conservatively expect 4% returns annually if invested. Additionally, using dealership financing can often be additional leverage to negotiate a lower purchase price.  If for some reason, you have bad credit or are unable to secure a loan for under 4%, paying cash might be reasonable.  The best thing you have going for you is your low monthly expenses. That is commendable.  If early retirement is your goal, you should consider housing expenses as a part of your overall plan, but I would strongly suggest you start investing that money in stocks instead of a single house, especially when you can rent for such a low rate. A 3 fund portfolio is a classic and simple way to get a diverse portfolio that should see returns in good years and stability in bad years. You can read more about them here: http://www.bogleheads.org/wiki/Three-fund_portfolio You should never invest in individual stocks. People make lots of money to professionally guess what stocks will do better than others, and they are still very often wrong. You should purchase what are sometimes called ""stocks"" but are really very large funds that contain an assortment of stocks blended together. You should also purchase ""bonds"", which again are not individual bonds, but a blend of the entire bond market.  If you want to be very aggressive in your portfolio, go with 100-80% Stocks, the remainder in Bonds. If you are nearing retirement, you should be the inverse, 100-80% bonds, the remainder stocks.  The rule of thumb is that you need 25 times your yearly expenses (including taxes, but minus pension or social security income) invested before you can retire. Since you'll be retiring before age 65, you wont be getting social security, and will need to provide your own health insurance."