• Using a retirement-specific account to save for later in life is generally smart. 
• But, when planning for early retirement, saving outside of retirement accounts will be necessary.
• And, it could help you diversify the types of accounts you have, and how your money will be taxed. 

Retirement accounts are a great place to start saving and investing. But, they might not be the only account you need to retire comfortably. 

Having savings and investments outside of retirement accounts could help you to have more flexibility with your savings, and fit your retirement lifestyle better. 

Here are two scenarios where saving outside of a retirement account could be the right move. 

1. You want to retire early 

If you want to retire early, you won’t be able to save all the money you need in retirement accounts, says financial planner Jovan Johnson of Piece of Wealth Planning.

He recommends saving outside of retirement accounts to anyone who’s looking to retire in their 30s, 40s, or 50s. 

“I would say the taxable account is a smart move, if they plan to retire early, that is the key account that can fill in that gap until the traditional retirement accounts can start pouring out money without a penalty, which is 59 and a half,” Johnson said. “The taxable account is very powerful in that scenario.”

If you’d like to leave work before you hit 59 and a half, you’ll need to have some savings built up that can be withdrawn penalty-free. Unlike tax-advantaged retirement accounts, you’ll be able to do that with a taxable investment account. 

2. You want to lower your tax bill

With multiple accounts, you have more options for how your money will be taxed.

“It’s always good to have a diversity of accounts. You want to have a pre-tax [account], a Roth, and a taxable,” Johnson said. Then, you have several different types of accounts to pull money from when needed, and several different ways to be taxed. 

Money from an individual taxable account could be taxed less when withdrawn in retirement than a traditional IRA or 401(k) would be. Traditional IRA and 401(k) withdrawals are taxed as income, while individual taxable accounts are taxed as capital gains.

Depending on your tax bracket, capital gains taxes could be lower than the income tax rate. Income taxes range from 10% to 37%, depending on income. However, capital gains taxes are either 0%, 15%, or 20%, depending on marital status and income level.

While Roth accounts are the one retirement account that’s an exception — as money isn’t taxed when withdrawn in retirement — an individual taxable investment account could lower your tax bill, or at least give you more options on how you’ll be taxed in retirement.