Self-employed 401k... like this: http://money.cnn.com/retirement/guide/selfemployment_individual401k.moneymag/index3.htm?iid=EL
When you withdrawal $ from a 401k, unless it is a loan, you will deplete it by up to 39% in taxes. A Roth IRA is much better than a 401k - ideal for us traders since you are only taxed once and have a lot more choices on what you can trade or invest in. You can convert your 401k into a Roth when you leave your job. If you convert when you have a lower or no income it will save you a lot in taxes. Converting only a portion of the 401k into a Roth each year will also help lower your taxes.
Roth is great! But they only allow you to contribute about $5000 or so per year. It would be great if they let you put more in. Even $7000 instead of $5000 would be great.
A 401k is a backdoor into a Roth - just have to wait a while that's all. When your older you could have a nice size Roth to trade out of without having to pay taxes or even file trading taxes - a traders dream - unless you blow up.
You have the right idea/intuition, but not quite the right math (or good enough returns to make the idea work out financially, although it could). As others pointed out, for a pretax IRA/401k, you pay ordinary income tax plus penalty if young on all withdrawals. There is no concept of capital gains within an IRA - it's just money in might get a tax break, money out might get a tax bill and/or penalty ("Might" referring to traditional vs Roth accounts with their different tax rules). So in your case 2, it should go: 1881 - 0.25*1881(tax) -0.1*1881(penalty) = $1,222.65 Which is $30 worse than the taxable version in Case 1. In general, doing this things with Roth money is more clear, since you dont have to be as careful about pretax money in vs aftertax money, different tax rates at different times, etc. However, your general idea that compounding tax free within a retirement account can overcome the penalty, even if you need the money earlier than retirement age, is correct. Suppose a 33% tax rate as you go and Roth money for simplicity. Case 1: taxable $1000 in taxable account (post tax) 5 years of 30% pretax returns each year So after tax 20% returns compounded $1000 * 1.2^5 = $2488 (after tax money) Case 2: Roth $1000 in Roth retirement account (no tax break for contribution, same as after tax above) 5 years of 30% returns $1000 * 1.3^5 = $3713 Cash it out, remembering that the original $1000 contribution isn't taxable for a Roth $3713 - 0.33*2713(tax) - 0.1*2713(penalty) = $2546 (after taxes and penalties) So you can come out ahead, you just need more time and better returns to overcome the 10% penalty. Obviously if you can, you should try to let this compound and live off other money since paying taxes on all those gains, plus penalties, is very expensive and an entirely avoidable cost if this ends up being your retirement stash. Also, there's no problem with a 401k trading a lot, assuming you can get a brokerage option offered by the plan.
Yes, 401(k) day trading is possible. Sure you can day trade in 401(k) plans offering self-directed brokerage accounts. In addition, you can “day trade” by making daily fund transfers between the mutual funds typically offered in retirement savings accounts (401(k), SEP, IRA, Roth IRA, etc.). For more information, check out the “401(k) Day Trading” book on how to make once-a-day fund transfers to capitalize on market volatility without incurring immediate taxes or direct trading costs. (Of course, you will still have to pay applicable taxes upon distribution.)