Mega Backdoor IRA when you plan to cash out early
Does it make any sense to contribute via Mega Backdoor IRA when you plan to take the money out before you are 59.5 years old? I'm in my late 20s and plan to purchase a home at some point. No significant savings until now. I'm thinking it makes more sense to save in a regular taxable account and pay long-term capital gains tax. That way I can use that money for a down payment on a home (which I'll do before I'm 59.5 y old). If I used a MB IRA I would have to pay taxes twice. Let me know if I'm making a mistake, maybe I'm missing something.
or take a 401K loan, max is 50K
"If I used a MB IRA I would have to pay taxes twice." That makes no sense. With Roth you only pay taxes on the contribution. Where is the 2nd tax?
Semantics. The first tax is regular income tax (because you contribute after tax dollars), the second tax is the income tax on any early withdrawal of gains.
That's not income tax, it's a 10% penalty
Don't plan to use retirement savings before retirement. You can declare yourself retired at an earlier age though.
Seriously consider living off of capital gains as an option
it depends on the frequency of your trading and your willingness to take risks regarding the tax rate. If, as you mentioned in the post that you plan on holding for long term capital gains, keep in mind that this rate may change due to new legislation. Even if you only pay long term capital gains, if you sell each year as part of your strategy you will not compound as fast as if you were in a Roth IRA. If you are willing to accept risks in tax rate and also are a primarily buy and hold investor then don't put into roth if you want to spend it early
You can only withdraw 10K for house down payment. Keep that in mind.
Right
But the principal invested in Roth can be withdrawn without any penalties.