But what about the old-fashioned taxable account? In fact, taxable accounts offer flexibility and other benefits of special value to young investors, features not found in retirement-oriented accounts.
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That's not to say IRAs and 401(k)s are not a good deal. The 401(k) provides an upfront tax deduction on contributions, and young workers in the right circumstances can deduct IRA contributions. In both types of "tax-deferred" account, investment gains are not taxed until money is taken out, supercharging compounding over the decades.
But for a young investor who may need cash for a car, a rainy-day fund, more education or a down payment on a home, IRAs and 401(k)s can be off-putting, because you generally can't withdraw money before turning 59.5 without facing taxes and a 10% penalty.