Taxable Investment Account- When is it a good option?

Investment management is a crucial aspect of personal finance, and one of the most difficult decisions to make. While most Americans prefer to use a tax-advantaged account like 401k(s) and IRAs, it is possible and also advisable to choose taxable investment accounts as part of your financial plan.

So, what exactly is a Taxable Investment Account?

A Taxable Investment Account allows you to buy and sell stocks, bonds, ETFs, and index funds, just like other investment vehicles, but the funds contributed have already been taxed (i.e., post-tax).  A qualified retirement account like a 401k or IRA differs from a taxable account as those accounts use pre-tax money that has not yet been taxed. 

When is it best to invest in a Taxable Investment Account?

A taxable investment account can be an excellent way to save more for retirement, especially for those who have maxed out their tax-deferred retirement accounts such as a 401(k) or IRA. If you have additional funds to invest, then a taxable investment account makes perfect sense for your investment management plans.

Advantages of a Taxable Investment Account over a Qualified Retirement Account?

No penalty for early distributionFavorable long term capital gains rates, and potentially a zero rateFuture step up in basisBorrowing against the accountTax efficient charitable givingNo contribution limits of income thresholdsCarryover cost basis and holding period on gifts to othersCapturing tax exempt interestNo required minimum distributions.

Conclusion

Wealth management plans are critical to achieving financial security and building wealth. A taxable investment account can be an excellent option for investors looking for liquidity, more investment options, and to avoid RMDs. By working with an expert financial advisory firm, like Foundation Wealth and Tax Advisors, investors can make informed decisions to create a comprehensive investment plan that aligns with their long-term financial goals.