Broker Check

Benefits & Features of Taxable Brokerage Accounts

March 07, 2024

Benefits & Features of Taxable Brokerage Accounts

Unlike retirement accounts, taxable brokerage accounts do not offer upfront tax benefits such as the ability to tax a deduction now, like with IRAs, nor do you get to enjoy tax free withdrawals later, like with Roth IRAs, but they do have benefits and can be a game changer.

What are some of the benefits?
     - Helps with tax diversification
     - Offer flexibility now and later
     - No contribution limits
     - No income limit
     - Wide range of investment options
     - Access to money whenever needed due to no tax penalties for early withdrawals

Taxable brokerage accounts
     - Funded with after-tax money
     - Taxed while it grows due to interest and dividends
     - Taxed when sell investments for a gain, either LTCG or STCG
          · If held for more than 12 months = long-term capital gain
          · If held for less than 12 months = short-term capital gain
 
What’s the difference between a LTCG and STCG?
     - LTCG have more favorable tax rates, between 0%, 15%, or 20% depending on your income and filing status
     - STCG are less advantageous as you are taxed at your ordinary income rate

What if you sell an investment and take a loss? This is where tax-loss harvesting comes into play as it can be a very powerful strategy.

Are you familiar with tax-loss harvesting? Stay tuned for more information in a later post.

Question?
Do you have tax inefficient investments in your taxable brokerage account?

Some investments make more sense to be used in a different account, such as in a pre-tax or tax-free/tax favored account, instead of in a taxable account and vice versa.

Be sure to consult a financial advisor and tax advisor to help implement and tailor a plan for you.
 

Disclosure:

Retirement Planning Solutions, LLC is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Retirement Planning Solutions, LLCC by the SEC nor does it indicate that Retirement Planning Solutions, LLC has attained a particular level of skill or ability. This material prepared by Retirement Planning Solutions, LLC is for informational purposes only and is accurate as of the date it was prepared. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Advisory services are only offered to clients or prospective clients where Retirement Planning Solutions, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Retirement Planning Solutions, LLC unless a client service agreement is in place. This material is not intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Retirement Planning Solutions, LLC is not an accounting firm. Please consult with your tax professional regarding your specific tax situation when determining if any of the mentioned strategies are right for you.