Personal Finance in Your 20s & 30s For Dummies, 3rd Edition
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Unless you enjoy paying higher taxes, you may wonder why you'd choose to save money outside of retirement accounts, which shelter your money from taxation. The reason is that some financial goals aren't readily achieved by saving in retirement accounts. Also, retirement accounts have caps on the amount you can contribute annually and restrictions for accessing the account.

Because you're constrained by your financial resources, you need to prioritize your goals. Before funding your retirement accounts and racking up those tax breaks, you should consider your other goals, such as starting or buying a business or buying a home.

If you withdraw funds from traditional retirement accounts before age 59-1/2, you not only have to pay income taxes on the withdrawals but also usually have to pay early withdrawal penalties — 10 percent of the withdrawn amount in federal tax, plus whatever your state charges. So if you're accumulating money for a down payment on a home or to start or buy a business, you probably should save that money outside of a retirement account so you get penalty-free access to the funds.

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Eric Tyson, MBA, is a personal finance writer, lecturer, and former management consultant to Fortune 500 financial service firms. He is the author or coauthor of more than 20 Dummies books on personal finance.

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