<p>Welcome back! Today we are talking about Taxable brokerages. Taxable brokerages are basically investment accounts that are not tied to any retirement savings or retirement withdraw rules, taxes and penalties. I will dive into why you would need one, the tax implications and more!</p><div class="captioned-image-container"><figure><a class="image-link image2 is-viewable-img" href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4a236e4b-6c1b-496e-b37f-3fcfaafa1621_1000x615.jpeg" target="_blank"><div class="image2-inset"><source type="image/webp" /><img alt="9 Best Brokerage Sites: Best Sites to Sell and Buy Online Businesses" class="sizing-normal" height="615" src="https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4a236e4b-6c1b-496e-b37f-3fcfaafa1621_1000x615.jpeg" title="9 Best Brokerage Sites: Best Sites to Sell and Buy Online Businesses" width="1000" /><div class="image-link-expand"><div class="pencraft pc-display-flex pc-gap-8 pc-reset"><div class="pencraft pc-reset icon-container restack-image"><svg class="lucide lucide-refresh-cw" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><path d="M3 12a9 9 0 0 1 9-9 9.75 9.75 0 0 1 6.74 2.74L21 8"></path><path d="M21 3v5h-5"></path><path d="M21 12a9 9 0 0 1-9 9 9.75 9.75 0 0 1-6.74-2.74L3 16"></path><path d="M8 16H3v5"></path></svg></div><div class="pencraft pc-reset icon-container view-image"><svg class="lucide lucide-maximize2" fill="none" height="20" stroke="currentColor" stroke-linecap="round" stroke-linejoin="round" stroke-width="2" viewBox="0 0 24 24" width="20" xmlns="http://www.w3.org/2000/svg"><polyline points="15 3 21 3 21 9"></polyline><polyline points="9 21 3 21 3 15"></polyline><line x1="21" x2="14" y1="3" y2="10"></line><line x1="3" x2="10" y1="21" y2="14"></line></svg></div></div></div></div></a></figure></div><p class="button-wrapper"><a class="button primary" href="https://beansandbucks.substack.com/subscribe"><span>Subscribe now</span></a></p><p><strong>Taxable Brokerage Applications:</strong></p><p>Taxable brokerages should be used once all of your retirement accounts are full. As we have discussed previously the limits for 2024 (under the age of 50) are $7,000 for Roth or Traditional IRAs and $23,000 for 401ks (not including employer contributions). For anyone that wants to maximize their savings or retirement investments, and have already maxed out the IRAs and 401ks for $30,000, what do you do next? Taxable brokerages. This is an account that anyone can open on many different platforms. The account holder can choose any investment they want, hold it or sell it whenever they want, and withdraw the funds whenever they want. However, this is where some tax implications may come into play.</p><p><strong>Taxable Brokerage Tax Implications:</strong></p><p>A taxable brokerage is exactly that: taxable. In 401ks and IRAs, there are tax-sheltered options. For example, your contributions go into your 401k pre-tax or you deduct traditional IRA contributions from your taxes. In a taxable brokerage, these contributions are made with funds that have already been reduced due to income tax. There are also tax savings in 401ks and IRAs in the event you buy or sell or exchange positions. However, in a taxable brokerage, all of your buying and selling is subject to taxes as either long-term or short-term capital gains. Long-term capital gains are applied on any position held for 1 year or more, while short-term capital gains are applied to investments held for less than a year. Short term capital gains are taxed as regular income at the normal income rate, while long term capital gains carry benefits by having their own lower tax brackets and being treated as income that is separate from regular income. </p><p><strong>Short vs Long Term Capital Gains Example:</strong></p><p>Assume a single-filer had a great 6 months in the market and have capital gains totaling $50,000 on top of your salary of $75,000 and you decide to liquidate your positions. When tax time comes around, the $50,000 of capital gains will be treated as <strong>regular income</strong> and you will be taxed for $125,000 of income on the year. This income puts you in the 24% marginal tax bracket, paying an effective tax rate of 18.43% for $23,042.50.</p><p>Now, this time we will assume that you held these positions for over a year, resulting in the same $50,000 in capital gains being treated as long term. Long-term capital gains carry their own tax brackets: 0% up to $47,025 for a single filer and 15% up to $518,900 in 2024! Therefore, you would pay 15% on only $2,975 for your capital gains and 0% on the rest ($446.25 total). Assuming the same $75,000 of regular income, your total tax liability for the year would be just under $12k at $11,999.25 or an effective tax rate of only 9.60%! This is just about HALF the tax liability vs short-term capital gains</p><p><strong>Final Thoughts:</strong></p><p>I want to specifically point out: This means you are double taxed in a taxable brokerage. Once before it goes in through income taxes and again once you pay your taxes on capital gains. ALWAYS max out your retirement funds before investing with a taxable brokerage. However, if you do have to invest with a taxable brokerage, always have a long-term investing outlook. Not only will you be more successful, but the tax code will reward you for it as well.</p><p>Thank for reading and subscribing and as always: I hope you have learned something that you can apply to your personal financial journey!</p><p class="button-wrapper"><a class="button primary" href="https://beansandbucks.substack.com/subscribe"><span>Subscribe now</span></a></p><p>Prosperously,</p><p>Jim</p>