7 Reasons To Invest In A Taxable Brokerage Account with Shaun Jones, #190

Retire With Ryan

What are some overlooked benefits of investing for retirement in a brokerage account? Why would you want to invest in a brokerage account in addition to a 401k or other retirement account? Shaun Jones—the President of Jones Fiduciary Wealth Management and author of “Unbrainwashed Investing”—shares 7 reasons to invest in a taxable brokerage account in this episode of Retire with Ryan.

You will want to hear this episode if you are interested in...

• [1:53] A brokerage account gives you increased flexibility
• [7:10] You have some control over taxes with a brokerage account
• [9:56] One strategy for a brokerage account
• [14:22] A brokerage account doesn't have required minimum distributions
• [18:17] Understanding step-up in basis
• [20:26] A brokerage account gives you liquidity
• [22:20] Why a cash balance plan isn’t always beneficial

Some of the benefits of a taxable brokerage account

You can only put so much into retirement accounts annually, by law. Once you’ve reached your annual limits, why not consider a brokerage account? Here are just a few reasons:

• Having money in a non-qualified brokerage account gives you flexibility. You can withdraw the money at any time (and don’t have to wait until 59 ½).
• You can earmark each brokerage account for different purposes
• You aren’t required to take minimum distributions
• These accounts are liquid and you can withdraw money at any time. It’s a nice tool to manage cashflow.

One of the biggest benefits is that it gives you more control over taxation.

The taxation of a brokerage account

Gains, dividends, etc. that you receive in a brokerage account are taxable (versus a retirement account). Every dollar that comes out of a retirement account is taxable as ordinary income, which can push you into a higher tax bracket than you may want to be in.

Most people don’t think about how much of their retirement balance is actually there’s to keep. The IRS always gets to claim a portion of it. You have no idea how much you’ll end up owning because you don’t know what the tax laws will be then.

However, a brokerage account has the potential to reduce your effective tax rate in retirement. You have a lot of control over your taxable income between when you retire and when you start taking distributions. That’s where 90% of tax planning happens. You can carefully consider when to take distributions to lower your overall effective tax rate.

One strategy for a brokerage account

A tendency toward index funds and passive investing will keep taxes and turnover low. Compared to other options, it’s a tax-efficient way to hold investments. If you hold an S&P 500 index fund and you’re continually dollar-cost averaging into it, you’re paying tax on the dividends (assuming it doesn’t create a high capital gain).

If you’re not selling, you’re not creating a capital gain. We usually advocate that our clients wait until they’re in retirement to sell that fund, especially if they don’t have a lot of other income and can stay in lower tax brackets.

We like to utilize tools that can project your average effective tax rate each year. It gives you a projection of what you’ll do if you don’t make provisions for tax management. If your effective tax rate will be 22% every year after taking RMDs, maybe you should trigger some at 15% or put money into a brokerage plan where you can control taxes.

Listen to hear the full conversation about what you need to know about taxable brokerage accounts and how they benefit you.

Resources Mentioned

• Retirement Readiness Review
• Subscribe to the Retire with Ryan YouTube Channel
• Holistaplan
• eWealthManager
• Unbrainwashed Success Podcast
• Connect with Shaun on LinkedIn
• Jones Fiduciary Wealth Management

Connect With Morrissey Wealth Management

www.MorrisseyWealthManagement.com/contact

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