The Personal Finance Podcast - 10 Incredible Benefits of a Taxable Brokerage Account!

Episode Date: May 15, 2023

In this episode of the Personal Finance Podcast, we're gonna talk about 10 incredible benefits of a taxable brokerage account. How Andrew Can Help You:  Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!  Watch The Master Money Youtube Channel!  Ask Andrew a question on Instagram or TikTok.  Learn how to get out of Debt by joining our Free Course  Leave Feedback or Episode Requests here.  Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/ Thanks to Ka’Chava For Sponsoring the show! Go to kachava.com/pfp and get 10% off on your first order.  Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp Policygenius: This is where I got my term life insurance. Policygenius is made so easy. To get your term policy go to policygenius.com and make sure your loved ones are safe. Hello Fresh: Check out Hello Fresh www.hellofresh.com/pfp50 and use promo code PFP50 for 50% off your first order and free shipping! Delete Me: Use Promo Code PFP20 for 20% off!  Links Mentioned in This Episode:  The Complete Guide to Generational Wealth: Part 1 How to Build Generational Wealth The Complete Guide to Generational Wealth: Part 2 How to Pass Down Generational Wealth How to Access Your Retirement Funds Early! 6 Ways to Access Your Retirement Funds Early with Jeremy Schneider (From Personal Finance Club!) The Stairway to Wealth (Where to Put Your Money In Order!) The Stairway to Wealth 2.0 (The Order You Should Put Your Money in!) Connect With Andrew on Social Media:  Instagram  TikTok Twitter  Master Money Website  Master Money Youtube Channel   Free Guides:   The Stairway to Wealth: The Order of Operations for your Money  How to Negotiate Your Salary  The 75 Day Money Challenge  Get out Of Debt Fast  Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

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Find your advisor at IG Private Wealth.com. On this episode of the personal finance podcast, we're going to talk about 10 incredible benefits of a taxable brokerage account. What's up, everybody, and welcome to the personal finance podcast. I'm your host, Andrew, founder ofmastermoney.com. And today on the personal finance podcast, we are going to be talking about 10 incredible benefits of a taxable brokerage account. If you guys have any questions, make sure to hit us up on Instagram or TikTok or Twitter or Twitter. Twitter at Master Money Co. Follow us on Spotify, Apple Podcasts, or whatever podcast player, you're listening to this podcast on right now. And if you want to help out the show, leave a five-star rating and

review on Apple Podcasts or Spotify. I cannot thank you all enough for leaving those five-star rating and reviews. I truly appreciate every single one of them. They truly mean the world to me. And also, make sure you're following us on YouTube as well at Andrew Jankola on YouTube. We are posting all of the personal finance podcast episodes on YouTube with visuals. And in addition, we are also posting original YouTube content as well. So really excited for that channel. And a lot of you are subscribing over there. So thank you so much for that. So today, we are going to be talking about 10 incredible benefits of a taxable brokerage account. And the reason why we are talking about this is I don't think there is enough people utilizing the power of a

taxable brokerage account. Now, we will talk through. all of these 10 benefits, and there are also additional benefits outside of these 10. And then we're going to talk about, well, when should you actually open and use a taxable brokerage account? Because it's very important to do this at the right time and make sure that you are covering your basis when it comes to some of these other accounts before you have this taxable brokerage account available to you. But we're going to talk about how flexible and amazing this account is. And we're going to go through some advanced stuff that you can do with a taxable brokerage account to really significantly reduce your taxes where most people see it as a

non-tax advantage account. And sure, it doesn't have the tax advantages maybe of a Roth IRA or a traditional IRA or your 401k or your 457. But what it does have is some additional advantages that you cannot utilize tax-wise in some of these other accounts. So we're going to dive into some of those today as well. And I'll give you some ideas of my favorite places to open these traditional brokerage accounts so that you can pick the place that may fit best for your financial situation. So really excited for this episode. So without further ado, let's get into it. All right, so number one is stepped up cost basis. Now, stepped up cost basis is just a tax concept that applies to assets inherited from someone else. Now, let me simplify that for you,

because a stepped up cost basis inside of a taxable brokerage account is really, really important. So in simple terms, you can think of this as it adjusts the original cost of an inherited asset to their market value at the time of the previous owner's death. So let's say for example, you inherited a hundred shares of a company from your grandma. And your grandma originally bought these hundred shares of a company for $10 per share. So this means her original cost basis was right around $1,000 or a hundred shares times $10. But let's say old Nana lived a full life. She got to 100 years old, which shout out to my grandma, she's going to be 100 years old this year. And say Nana got to 100 years old and then all of a sudden, you know, these investments

grew from $1,000 all the way up to $5,000 for these 100 shares. Now, this is an amazing problem to have. This is an amazing situation to be in, but these shares did grow to $5,000. But we got these bad boys in a taxable brokerage account. So what happens in a taxable brokerage account? Inside of a taxable brokerage account, you got to pay taxes. This isn't like the Roth IRA where your money grows tax-free. Instead, inside of this taxable brokerage account, you've got to pay taxes.

Now let's say you inherit these shares from your grandmother. And instead of using your grandmother's original cost basis of $1,000, the cost basis is now stepped up to the market value at the time of her death, which is $5,000. Now the stepped up cost basis is incredibly important right here because you're going to eventually sell those inherited shares. And if you sell them for more than the stepped up cost basis, then what you're going to pay is only capital gains on the difference between the stale,

price and the stepped up cost basis rather than the difference between the sale price and the original basis. Okay. So here's a simplified way to say this. The original price, for example, would be $1,000. But if you would inherit it in a taxable brokerage account, that original price, as it grew to that $5,000, and you're only going to pay taxes on the difference from $5,000 to whatever gain you sell it at. So say in another decade or so, those shares go all the way up to $10,000 and they're worth $10,000. You're only going to pay taxes between that 5,000 and that 10,000, instead of paying taxes between her original price that she bought them for of 1,000 to 10,000. This is the power of having that stepped up cost basis because you want to have the differential there where you're reducing your tax bill. Now, in this example, I'm using smaller numbers to get this across.

But most people, when you inherit money, you may inherit a lot more money than what we're talking about here. So you're thinking, hey, well, $5,000, that's not going to be a lot of money that I'm going to be paying in taxes when this point in time comes. But let's say, for example, you inherit a million dollars. And the differential between that $1 million, you see how compound interest works. Let's say your family just started contributing and maybe their total basis was $200,000. Where you're going to have $800,000 worth of taxes sitting there if you don't know this stuff. And having that in a taxable brokerage account, you're going to get that stepped up cost basis of a million dollars. and then all of a sudden what's happening here is you're going to pay the difference between a million dollars and whatever it grows to.

So you can make a bunch of decisions if you inherit this. Number one is you can decide, hey, maybe I want to move this money somewhere else that is more tax efficient for me once I get this because I have that stepped up basis. This is very powerful when it comes to your tax account because when you can move that money over and not have to pay $800,000 worth of taxes, now you're seeing the massive benefit to this because you're saving hundreds of thousands of dollars, just by making that move. So this is a really powerful thing that is available to you inside of a taxable brokerage account

that is not available to you in a lot of other types of accounts unless you do certain things. So that's the first one. It's going to save you money with that stepped up cost basis. Number two is cash flow flexibility. So the name of the game

when it comes to a brokerage account is brokerage accounts are extremely flexible. This is why I absolutely love brokerage accounts because they have all the flexibility available to you. And what does your boy say all the time when it comes to your money? You have to be flexible when it comes to your money. This is why we want you to automate your money, but have those flexibility options baked in.

We want you to have that emergency fund gives you flexibility. Well, the taxable brokerage account also can give you flexibility. So when it comes to your money, flexibility is the name of the game. You want to be as flexible as possible when it comes to having options. You want liquidity available to you and you want all these other things available to you so that you can make moves when the time comes. So unlike your standard retirement accounts, you can think of your IRAs, your 401Ks,

taxable brokerage accounts don't have those pesky rules on contributions and withdrawals. So there's no cap on contributions is number one, meaning you can contribute as much money as you want inside of a taxable brokerage account. Really high earner and making a lot of money, good problem to have, and you can put as much as you want inside that taxable brokerage account.

Whereas if you look at something like a, IRA, you can only put $6,500 per year at the time I'm recording this episode. Or if you want to contribute to a 401k, $22,500 per year at the time recording this, unless you're age 50 or older, then you can add an additional $7,500 into that 401k at the time recording this. So when you look at this, you're capped at some point in time. And all of us as wealth builders want to grow our income over time. So what do you do with that extra income? Enter the tax brokerage account because you could put as much money as you possibly want to inside of that taxable brokerage account. You could stuff millions inside of that taxable brokerage account if you

want to do something like that. And so this gives you that flexibility. There's no contribution limits when it comes to investing in that taxable brokerage account. Number two is there is no mandatory age withdrawal. So when you have something like a 401k, you're going to have required minimum distributions coming up at certain ages. Depending on when you were born, there's a couple other factors in play, but 72, 73, somewhere around that time frame, you're going to have RMDs that are going to have to start withdrawing from your account. So with taxable brokerage accounts, you don't have those types of rules.

Number three, you don't have income limits. So with a Roth IRA, you can't contribute if you make a certain amount. So you have these income limits that are really restricting you because you have that money in a Roth IRA. But with a taxable brokerage account, there is no income limits. Anybody in this world can open up a taxable brokerage account and start contributing money to that account. So between these three options, it gives you way more flexibility, especially if you're looking at something like early retirement where you want to be able to look at some of this stuff and have that access. Why does this matter?

Because if you want to be a high earner or even if you're someone who works in a situation where you are paid be a bonus, maybe a massive bonus comes in and you're trying to figure out what to do with that cash and you just want to get it into investment so that you don't touch it anymore. That's how I am. When I get a massive influx of cash, I want to take that cash and just get it into investments. Otherwise, if you put it in your checking account, let's get real here. It's going to dwindle down at some point in time. You're going to start to buy a couple of extra things. And so getting it into those accounts, getting it out of sight, out of mind and just getting it invested so it can start working for you is very powerful. Taxable brokerage account, perfect for that.

Because say, for example, you're maxing out all of your retirement accounts, then you have that taxable brokerage account available to you, unless you want to diversify into something like really. estate or something else. All right. Number three is qualified dividends. So when it comes to dividend investing, if you're a dividend investor or you're interested in investing in stocks that pay a high dividend, I really like dividend stocks in a Roth environment. The reason for this is because your investments grow tax-free, including your dividends.

So if you have a high-dividend portfolio, for example, and it's spitting off thousands of dollars in cash every single month to you, then you can have thousands of dollars every single month tax-free inside of that Roth. But you also have the taxable brokerage available to you, which is taxed at a much lower rate than your income tax would be because you're being taxed at that capital gains rate. So whatever your capital gains rate is, that's what your dividends would be taxed at, which is a benefit inside of that taxable brokerage account when you're looking at it this way. So Roth would be number one for me, but then the taxable brokerage account would be a second place that you could look at this. Now, what kind of stocks actually get a qualified dividend? Regular stocks would get these, ETFs would get these, rates would also get these. So thinking about some of these would be some of the options that you would have available to you. So a large portion of investments out there that have qualified dividends. Now, because you have it inside of this taxable brokerage account, you're going to be taxed at that long-term capital gains rate as long as you are holding these for a longer period of times. Say, for example, you held a stock for over a year,

you're going to get that long-term capital gains rate. So for most people, this is anywhere from 0%, 15% or 20%, just depending on what your income is. For most people, they're going to fall into that 15% bucket range. And if you have a really, really, really, high income, then you may fall into that 20% range, but this is much, much lower than what you would be tax at as your ordinary income. Now, when you have to report some of these qualified dividends, you're going to get that form 1099, which most of you probably just did this because I'm recording this right after tax time, and then you're going to send that over either to your accountants or put it into Turbo Tax or whatever else you use to go through that. So for example, if you have

a $1,000 worth of dividends coming into play and you have a 15% capital gains tax rate, then you're only going to pay $150 in taxes on those dividends. Whereas if your income tax rate was 25 or 30 percent, it really does reduce the amount of money that you're paying an income taxes based on doing that. So very important to understand that this is a great place to park some of those qualified dividends. Roth first is where I prefer it because you're going to pay a lot more than you would just in a Roth where you're paying zero. But if you don't have a Roth available to you, then going into the taxable brokerage account is probably one of your next best options because you at least are going to be tax on whatever your capital gains tax rate is.

Now, short-term capital gains tax is much, much higher. So making sure you hold some of these investments for the longer period of time is why your tax rate is going to be reduced. So it's got to be held for at least a year or longer to get these reduced tax rates. So if you're someone like a day trader, this does not pertain to you. But most day traders are not listening to this podcast either. All right. So the next one is number four.

And this one is the carryover holding period or basis for gifts. a gain. So this one is going to be pertaining to if you are gifted stocks or you want to gift your children's stocks at some point in time. So when you give the gift of stocks or other investments inside of a brokerage account, you need to know two things. You need to know the carryover holding period and you need to do the basis. Now, to properly report any gains or losses when you sell these investments, there's a simple explanation to this. So number one is the carryover holding period. So the cool thing about a taxable brokerage account is that if it's given to you as a gift, the holding period or the length of time that you've actually owned the investments carries

over from the original owner to the recipient. Now, this is a very powerful thing because it can reduce the amount of money that you have to pay in taxes if you need to sell this immediately. So say, for example, in the original example, your grandmother is still alive. Your grandmother gives you $5,000 worth of stocks. Well, it is going to be assumed that that carryover period, that she's held those stocks for a very long period of time, and that carryover period is going to now go to you if she gifted those because like I said, short-term capital gains tax is much higher than long-term capital gains tax. So as long as it's been held for over a year, it reduces that tax rate. But in addition, the basis for gifts at a gain also carries over. Just like if you inherited the money

from your grandmother passing, if she gifts you the money, you also get that basis to carry over. So say, for example, she bought those same shares for $1,000 and they're now worth $5,000 when she gifts it to you, well, then you're only going to pay taxes on the difference between that $5,000 and whenever you sell that money. So a brokerage account is a great place to gift money to people when it comes to reducing that tax rate if you want to pay less than, you know, ordinary income tax or just giving them cash or something like that. Instead, you can look at something like this and have this available to you if you're going to gift a large amount because the carryover is going to be there reducing that tax liability if they want to sell those shares. And you also, you also,

get that carryover basis. So the time period and the basis both carry over if you're gifting money inside of a taxable brokerage account. So I love that side of it. Number five, so if you're charitably inclined, meaning that you like to give away money, then you can look at something like a donor advised fund. And we have a Twitter thread that I did a while ago about donor advised funds and how powerful they are. This is what billionaires use to give away their money. And it's one thing that you can look at and start your own as well. There's some great videos out there. We're working on a YouTube video to create to kind of give you a deep dive on this so that you can check that out. But when it comes to donor advised funds, this is one fantastic way

to give away money. But the beautiful thing about donor advised funds and brokerage accounts is they can work in tandem. So say, for example, you want to add money into your donor advised fund, which is basically like a charitable savings account. You can think of it that way. It actually allows you to recommend grants to qualify charities over time and you get some really good tax savings by utilizing a donor-advised fund. But by transferring appreciating assets from your taxable brokerage directly to a donor-advised fund, you avoid paying capital gains taxes on the assets growth. Now, this is really powerful because if you're going to give money away anyways,

and you have a stock that's really just gone crazy, for example, you can transfer some of those funds over to the donor-advised fund and not have to pay money on the growth of that money. So if you're giving money away anyways, amazing tandem to have available to use that open up the donor advised fund. And you can call your donor advised fund whatever you want. Plus, when you do this, you're eligible for an immediate tax deduction based on the fair market value of your donation. So it is a cool double whammy that you get here where you're not paying the capital gains tax and you're also eligible for that tax deduction that's going to allow you to contribute to that donor as fives fund. So this strategy allows you to give more to the charities that you believe.

the charities that you love, and it helps you save a ton of money when it comes to taxes. So this is a great way if you're charitably inclined, you can actually combine these two together and utilize the taxable brokerage account and donor advised funds. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where Indeed comes in. When it comes to hiring, Indeed is all you need.

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We will have entire episodes on both of these, and I will deep dive into some of the strategies that you want to use for these. But let's go over some of these things right now. So tax loss harvesting is an investment strategy that you use to minimize the taxes that you pay on gains. So in simple terms, this is a way where you just sell off investments that maybe had somewhat of a loss at some point in time to all. offset the gains that you have in other investments so that overall you can reduce your overall tax

liability that you have available to you when it comes to some of your investments. Now, there are robo advisors out there that will do this automatically for you and the pros of robo advisors or that they do this automatically for you. And if that robo advisor can save you more in tax loss harvesting, then can their fees that you have to pay them, which usually they're right around 0.25% or 0.30%, which is not bad, which is why I don't really mind robo advisors if you want to go that route, they can actually take care of some of that for you. So let's say, for example, you bought two stocks. And the first stock you bought for $1,000, and it is now worth $1,500. We're going to make this math super simple for me to do on the fly.

Then stock B that you buy, you bought it for $1,000, and now it is worth $700. So you lost $300 on stock B. Well, if you sell both stocks, you'd have a net gain of $200 between both of these stocks because you have a $500 gain on the one that did well and you have a $300 loss on the one that did not do so well. So you'd be taxed on this gain from both those stocks of that $200. Now, when these numbers get way larger, obviously the tax implications are way larger. So if you sold both stocks, you'd be taxed on that net gain of the difference between that $500 gain and that $300 loss. Whereas if you didn't do something like this and do the tax loss harvesting, then you'd be taxed on that $500 gain in total. So if you do something like this, it'll reduce the amount of money that

you have to pay in taxes when come tax time. Now, there are some rules that come into play with here. One is the wash sale rule. So you cannot claim a loss if you buy the same investment within 30 days before or after selling a losing investment. So the IRS is obviously knows that this happens and they know that people do this. They have this wash sale rule in place so that people don't just do this all day long. And usually, if you're going to do you, tax loss harvesting, using something like a robo advisor or talking to someone to kind of help you through the first couple of times so that you can have this available to you is beneficial. But when we do those episodes, I will talk about how you can do it yourself also so that you can

go through this and learn, hey, I got to avoid some of these things so I don't get myself in trouble when I'm trying to do tax loss harvesting. But there are some pros to this. The three pros to this are you can lower your tax liability, meaning you reduce the amount of tax liability you have for that given year. Number two is portfolio rebalancing. It can also provide an opportunity to rebalance your portfolio as you sell losing investments and reinvest those proceeds into more diversified investments or better performing assets.

And you're also deferring taxes. So when you utilize tax loss harvesting, you're deferring those taxes to later years and allowing your investments to grow tax-free in the meantime. So it gives you three big benefits there when it comes to tax loss harvesting. Now, there's also tax gain harvesting. And when it comes to tax gain harvesting, this means you are intentionally realizing capital gains in order to take advantage of lower tax rates or to reset your cost basis of your investments. So this can help you reduce future gains that you're going to have

on investments. If you're planning on holding these investments for a very long period of time, then you can actually reduce the amount that you have to pay in those future gains or provide a tax-free income in certain situations. So certain situations, this is an amazing thing to do because you can provide a tax-free income. So let me give you a great example of this. So say, for example, you are in the zero percent long-term capital gains tax rate. And you buy a stock for $1,000. That stock goes up to $1,500. Well, if you sell that stock now and then repurchase it again, you have that $500 gain at that 0% tax rate. So you don't have to pay taxes on that money. Whereas in the future, if you think your income is going to go up, then what's going to happen

in that situation is you're going to have to pay 15 or 20% whatever tax bracket you're in for long-term capital gains, you're going to have to pay that money. So if you think your income is going to go up in the future, this is a great strategy, especially if you're in that 0% capital gains area. Now, here are three ways where this may be beneficial, because you're resetting that cost basis in that example I just gave. So number one is reset cost basis, meaning that you can realize gains and increase the cost basis so that you're not paying so much for the differential between the two. Number two, if you're in a lower tax bracket, so if you're in that 0% tax bracket, or you're in the 15, you think you're going to jump to 20, then maybe that is a situation where you want to realize that gain now and tax gain harvest now.

Pay the taxes if you're in that 15%. Don't pay any taxes if you're in the 0% and get that over with now so that you don't have to pay all of it within the 20% tax range. And then estate planning. So tax gain harvesting is very beneficial when it comes to estate planning if you don't want to pass on tax basis to airs. So this is another situation where if you don't want your heirs to have to pay a ton of money in taxes, you want to get it over. we're with now, then you can take care of that for them by utilizing tax gain harvesting. So these are two other awesome benefits that you can do inside of a taxable brokerage account because it gives you that flexibility. So you have these two options to have that flexibility

inside of a taxable brokerage account so that you can take advantage of some of these tax benefits that you may not have it available to you in some other types of accounts. All right. Number seven is it gives you flexibility inside of your kids investment accounts. So if you guys have ever heard me talk about how I invest from my kids, one of the ways that I do it right now because I have a two-year-old and I have a four-year-old is that I use taxable brokerage accounts. And the way that I set these up is I put the taxable brokerage accounts in my name and I name them a different name for each child. Then I make them the beneficiaries of those accounts. And this gives me a ton of flexibilities because if you look at UTMAs or UGMAs, they don't have very much flexibility whatsoever. but inside of something like a taxable brokerage account, they have a ton of flexibility

because you don't know what's going to happen in life. So as your kids get older, and I'll give my system on how I invest for them in a second, and we've had a whole episode on it, but I'll talk through it a little bit here too. So as my kids get older, then they can decide, hey, maybe they want to utilize this money for something specific and or maybe I want to hang on to this account for a little longer. I don't want to tell them about it until later on in life so it can compound more and grow more. Maybe I don't trust their judgment as much as I thought I would when they become of age. Whereas in a UTMA or a UGMA, when they turn age 18 or 21, depending on what state you live in,

that account is theirs. But in a taxable brokerage account, you can hang on to that account for as long as you want to and then just will it to them when you pass away and or you can keep that account in your name. And then at some point in time, when you think they're responsible enough to handle that money, then you can give them account and explain to them why you wanted to compound this account and grow it over time. So I have each of my kids inside of a taxable brokerage account right now

and the money that I invest for them is $100 every single month. So I put $1,000 every time they're born, then $100 every single month. And then every birthday or Christmas, I'll add right around $250, sometimes more, if they get more money from relatives or things like that, into those accounts.

Now, if you heard me talk about this before, they'd have over $7 million by the time they turn age 65 if they let that thing ride and I did not contribute another dollar by the age of 18. So this is a very powerful way to really build generational wealth for you and your family by doing this. Now, each child would have $7 million to be like $14 million total because they have so much time to compound over that time frame. If you haven't heard that episode, we will link it up down in the show notes below because it is one of my favorite ways to do this.

Now, you can also invest in something like a Roth IRA for your children as well. And we have an episode coming out on how you can do that. But they have to have earned income to do that. So when they're young, starting it this way is going to allow you to be able to be able to, to build up that generational wealth for them. So there are some really cool ways that you can invest for your kids, really cool ways that you can build generational wealth for your kids. We have a ton of content coming out on that. But this is some of the best ways for me is early on. I love to have that flexibility because I want to see how the cards play out. I want to see what's happening

and I'm trying to teach them as much as possible about money and building that generational wealth mentality in their brain so that once they get to the point where they're handling their own money, it's easy for them, it's effortless. And they're going to build up these accounts over that time frame. Now number eight is that taxable brokerage accounts allow you to bridge to retirement age. So say, for example, that you want to retire at age 50 instead of age 59.5.

Well, if you have a taxable brokerage account built up over that time frame, then you are going to be able to bridge yourself from age 50 to 59.5. Maybe the taxable brokerage account is the main core area that you are withdrawing cash from until your five-year rule sets on a Roth conversion ladder or something along those lines, then you have the taxable brokerage account available to you to live on for a while

until you get to that traditional retirement age where you don't have to pay penalties at 59 and a half for your 401k and your IRAs. So thinking about this is going to allow you to have that extra flexibility if you want to retire early. And if you heard Jeremy Schneider from Personal Finance Club on this podcast, we talked about taxable brokerage accounts when it comes to retiring early and accessing your funds early. This gives you extreme flexibility when it comes to that. We have strategies that we've talked about and how to access your retirement funds early if you're in a Roth IRA or if you're using any other type of account like a 401K. So look into those episodes. If you have not heard, then we will link them up down in the show notes below so that you can check those episodes out.

But making sure you have that bridge available to you is going to give you that additional flexibility. Number nine is that taxable brokerage accounts allow you to take advantage of opportunities. So your brokerage account can also be the emergency fund of your investments. What do I mean by that? Let's say, for example, that someone brings. you some amazing investment opportunity. Maybe somebody just needs to sell a business really fast, a very profitable business, because they just want to go and they want to retire. They just are done with it. They don't want to deal with it anymore. They don't want to deal with, you know,

a car wash or whatever else it is. And they just want to get rid of this thing. And they want to do it at a really low price. Well, if you don't have the cash liquid liquid available to you to take advantage of that opportunity, you can't take advantage of it. But in a taxable brokerage account, you can liquidate that very, very quickly. In fact, usually when I've had to liquidate portions of a taxable brokerage account, it only takes a day or so before that money is ready to go for you to put towards whatever you need to put it towards. So say you have a business available to you, you have that money in that taxable brokerage account that you can use for this. Now, if you're saving for something like that, that's not what I would use a taxable brokerage account for.

But if you already have the money liquid inside of that brokerage account, and this opportunity is going to make you way more than 8 to 10% a year, then it's worthwhile looking at that option so that you can take those dollars and put them towards things that are going to bring even higher returns in the long run. Also, another example of this, and this happens to me at least once a year, is that say, for example, someone comes to you and they say, you know, my mother just passed away and I just want to get rid of the house. I don't want her house anymore. I don't want to think about it anymore. I just want to get rid of it as fast as possible. In fact, I just want to have a cash infusion so that I can get rid of this house

and just have somebody else handle this. So if this situation arises, you're interested in investing in rental properties or you're interested in investing in flipped houses, then this is going to allow you to have the cash available to take advantage of something like this if you already are investing inside of a taxable brokerage account. Now, in recessionary periods,

this is why I don't want you saving for your rental properties inside of a taxable brokerage account because if a recession comes, your taxable brokerage account is going to get cut in half immediately. So this is not a good place to save your money or have your emergency fund or anything like that, but what it can be is if you need, need some extra funds to take advantage of an amazing opportunity, they are there and liquid.

You can't do this outside of something like your 401k without paying massive amount of penalties and paying taxes on your money. But you can do this inside of a tax of a brokerage account. You can take advantage of opportunities that arise because wealthy people have cash available that can be liquidated so that they can take advantage of opportunities. People who do not build wealth cannot take advantage of opportunities because they do not have cash. This is why we propose having an emergency fund as fast as you possibly can inside of the stairway to wealth, because cash will give you security, but in addition, cash allows you to take advantage of opportunities. And this is the side of the coin we don't talk about enough.

For example, I've known people who cannot take advantage of higher paying jobs because they don't have enough money to make the move across the country when they get offered the job. Emergency fund allows you to have that cash in place so that you can fund the move and move across the country. So people who are wealthy have money available to them that can be liquidated quickly. And that's benefit number 10 is that the taxable brokerage account is extremely liquid. So if some crazy emergency happen in your life, you have liquidity available to you in that taxable brokerage account that you can use that money to take advantage of it.

Maybe it just dries up your emergency fund. You have a six-month emergency fund in place and something crazy happens in life and you have to take that money out of that emergency fund. You still need more money to fix the situation. Well, in this example, a taxable brokerage fund. brokerage account can help you liquidate more money. Gives you that additional flexibility that is so incredibly amazing. In fact, it's going to allow you to do that with all these opportunities.

It's going to allow you to do that to protect your wealth. There's so many different things that a taxable brokerage account can do for you. That's going to allow you to actually have that opportunity available to you. Now, when should you invest in a taxable brokerage account? You're probably thinking through this like, hey, we've talked about all these retirement accounts. I've been putting all my dollars in these retirement accounts. And now you're telling me I should be considering a taxable brokerage account as well. Well, this is when I would look at.

is I want you to get through all the steps to stairway to wealth until the taxable brokerage account point. So there's a reason why the stairway to wealth is in the order that it's in because a taxable brokerage account can help you with some of this future stuff as you start to build wealth and accumulate wealth. So if you increase your income over time and you're maxing out maybe your Roth IRAs and maybe your employer doesn't offer a 401k. If they don't offer a 401k, then you can look at an IRA. But if you max that out as well, then maybe you're looking at the taxable brokerage. account because you're going to the next step. So when it comes to the stairway to wealth, if something's not available to you, you move on to the next step. And the taxable brokerage account comes after emergency fund, paying off high interest debt. It comes after the Roth or HSA. It comes after

the 401K, if you have it available to you. And if you don't, the IRA. And then you have your taxable brokerage account available to you. So if you can sprint to that point where you're saving a large amount of your income, you can get money inside of a taxable brokerage account. This is the flexibility and this is what it provides to you. And or if you've run the numbers and say, hey, there's a lot of tax benefits to these other accounts, but I love the flexibility of a taxable brokerage account. If you run all those numbers and you say, I would rather be more flexible in a taxable brokerage account and pay the taxes on this money, then maybe that's an option for you. But we've run the numbers a bunch of times here at Master Money in the Personal Finance podcast,

and you do come out ahead by getting those tax benefits. So you got to run the numbers and say, how much is that flexibility worth it to you? For me, it's always worth to have hundreds of thousands of dollars, if not millions of dollars more inside of my account, which is why I look at the Roth IRA and the 401K more. But if you love having flexibility, then taxable brokerage account may be best for you as well. So if you haven't heard the stairway to wealth or you haven't listened to that episode, it's called the stairway to wealth. 2.0 is the latest one. We're working on a 3.0 also that will be coming out soon, which is to be adding additional things to it. But just looking at the 2.0 and we also have a downloadable

PDF that you can access, which we will link up down in the show notes also with the episode, you can also go to mastermoney.co slash stairway to wealth. It's in our resources tab on at mastermoney. And you can access the stairway to wealth and go through this process because this is the order that we want you to allocate your dollars towards and ensure that you are building as much wealth as you possibly can. That's our entire goal here at this podcast is to give you as much value as possible so that you can build as much wealth as possible. So really excited for you to check that out as you go through this process. Listen, if you guys have any more questions about a taxable brokerage account or if you're If there's additional benefits that you can think of that we did not add into this episode, make sure you hit me up on Instagram, TikTok, Twitter.

Shoot me an email back to our newsletter if you're subscribed to our newsletter. And we can talk through some of these additional benefits as well. So thank you guys so much for listening to this episode. I truly appreciate each and every single one of you. And we will see you on the next episode. Rosen lasagna, medium power, 15 minutes. Sounds like Ojo time. Let's play.

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