We talk so much about Roth IRAs, 401ks, 403bs, HSAs, etc, I often get questions like “Where else can I invest once I max out my Roth IRA?!”. But let’s not forget, all those fancy accounts are just special TYPES of brokerage accounts. A brokerage account is simply an account that you invest inside of. The US government introduced IRAs, 401ks, 403bs, etc as special brokerage accounts that offer a tax break as an incentive to save for retirement. In exchange you give up some of the flexibility of a regular brokerage account.
Just because those accounts exist doesn’t mean you can’t still use a regular old brokerage account which has none of the limits or restrictions of the tax-advantaged accounts. And it’s certainly the place to invest when you’re out space in your tax-advantaged accounts. It might also be the right tool for the job if you’re saving for a shorter term goal.
Now let’s talk about taxes. Just because you get taxed on something doesn’t mean you don’t want to do it. i.e. If I can invest $10,000 and turn it into $100,000 the government is going to want to get paid on the $90,000 of gains. Even if they take 20% of those gains, that still leaves me with $82,000. Way better than $10,000! (If that $10,000 was invested inside a Roth IRA you get to keep all $100K though!)
Personally, about 93% of my assets are in a regular taxable brokerage account. I have too much money to fit into the tax-advantaged accounts. That’s what we call “a good problem to have”. When I get taxed on the earnings, I pay a lower rate than people who actually work for their money since “earned income” is generally taxed much higher than “capital gains”. (This is your reminder to vote.)
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
One of the rules of the Roth IRA is that you can’t contribute more than $6,000 per year, but you also can’t contribute more than