I’m 25 and I want to retire early someday but how can I do that if I can’t touch my 401(k) funds until I’m 59?

If early retirement is a goal of yours, there’s an issue you need to address. Traditional retirement accounts like 401(k)s and IRAs limit withdrawals so you typically can’t make penalty-free distributions until 59 1/2.

One Reddit user is concerned about this rule. He posted recently to ask how he would survive if he saved enough to retire by around 45 or so and couldn’t access his retirement funds for another 14 1/2 years.

So what should the Redditor do in this situation to make sure his dreams of leaving the workforce early aren’t spoiled by the IRS rules restricting withdrawals at a young age?

Here’s what you need to know about investing for early retirement

If you are planning on retiring early, the first thing to know is that there are some options for accessing funds in tax-advantaged retirement accounts before 59 1/2.

If you have contributed to a Roth IRA, you can take out contributions at any time without incurring a penalty, so you could use some of this money to live on. If you have money in a 401(k), the Rule of 55 also allows you to start withdrawing money as young as 55 if you meet certain requirements like leaving your job and withdrawing only from your account with your most recent employer. 

For some people, this will provide a sufficient amount of income — especially if you don’t plan to leave work until 55. For others, though, the limited amounts you can access penalty-free from retirement plans won’t be enough to live on. In those situations, achieving the early retirement dream would require investing in a taxable brokerage account as well as putting money in tax-advantaged plans. 

Planning for early retirement is a different ballgame 

When you are taking an unconventional path, though, you need to take an unconventional approach to retirement investing. Obviously, you’ll have to make sure you have a lot more money invested since your savings will need to support you for longer. You also need to address issues like how you’re going to pay for health insurance until you reach Medicare age — which can add a considerable additional chunk to the amount of money you need invested. 

Prioritizing how to divide up your investment dollars becomes an issue as well, since you want to snag all the tax breaks you can for retirement investing but need some money in those taxable accounts to be accessible at a young age. 

Ultimately, the best course of action in this situation may be to work with a financial advisor to create a personalized plan. You can discuss your desired retirement timeline, work to identify different income sources that will be available, and decide both how much to invest and how to allocate those funds into different accounts so you’ll have income coming from multiple sources as needed. 

Creating this plan as soon as possible can ensure that you’re on the path to the early retirement of your dreams and that you will have plenty of accessible funds to support yourself when retirement day arrives.