Retirement plans are a terrific way to set yourself up for the post-work golden years when you have to decide the strategies you want to adopt to save for your future. While most individuals are familiar with individual retirement accounts (IRAs) and 401(k) plans, there are other options that’ll better suit your plan.
A Roth IRA and a non-tax-advantaged brokerage account are two such options to examine, each with advantages and disadvantages.
What is a brokerage account?
If buying and selling a variety of investments is part of your plan for the future, you’ll get more by investing in a brokerage account. You can utilize a brokerage account instead of handling your own day-to-day trading.
A brokerage account requires that you put your money into an account with a licensed brokerage business. That company will then take the money and invest it in numerous investments on your behalf.
There are many account options inside each brokerage, including cash accounts and margin accounts. A cash account requires the investor to pay for all stocks purchased at the time of purchase, but a margin account allows you to borrow money from your brokerage firm to buy shares.
Existing securities in your portfolio are subsequently used as collateral against the portfolio loan you took.
The Advantages of Investing in a Brokerage Account
- There are no income restrictions or contribution caps: Unlike a retirement plan, a brokerage account does not discriminate between people with little income and those with substantial bank accounts. There are no limits on how much you can invest in a brokerage account.
- You can put your money into almost anything: You can purchase and sell stocks, mutual funds, exchange-traded funds (ETFs), and other securities to diversify your investment portfolio.
- There are no penalties for withdrawing funds early: Most retirement plans limit when you can take money out of your savings, but as long as you pay your taxes, nothing stops you from taking money out of your brokerage account.
- There are no forced distributions: Your age has no impact on your investments at any particular time. You won’t have to withdraw funds from your brokerage account.
Cons of Using a Brokerage Account
- There are no guarantees on returns: The stock market has the potential to be highly turbulent. There is no certainty of getting a return on your investment when you put money into the market.
- Income and capital gains are subject to direct taxation: Brokerage accounts, unlike most other retirement investment plans, are taxed at practically every level, including dividends, interest, and capital gains.
What is a Roth IRA?
A Roth IRA is an IRA that allows for future tax-free withdrawals in exchange for current after-tax contributions. Growth in the IRA is similarly tax-free, and you can begin contributing as soon as you have qualified earned income.
Roth IRA Advantages
- Excellent tax advantages: The tax benefit provided by a Roth IRA is one of the most compelling reasons to use one. You won’t have to pay federal or state taxes on your contributions’ earnings, and all withdrawals are tax-free if you meet specific criteria.
- Minimum distributions are not required (RMDs): Some retirement plans require you to start withdrawing funds at a specified age. This restriction does not apply to Roth IRAs, allowing you to continue to grow your investment after retirement.
The disadvantages of a Roth IRA
- Taxes are deducted from your funds as you deposit them: Contributions to a Roth IRA are taxed upfront to reap the advantage of zero taxes on future withdrawals.
- The maximum contribution is a small amount: You may be limited in how much you can donate depending on how much money you make each year. The cap will be $6,000 in 2022. A catch-up contribution of $1,000 is available to those over 50.
- Income restrictions may hamper contributions: You may be limited in how much you may contribute to your Roth IRA based on your total modified-adjusted gross income (MAGI).
- The waiting period for withdrawals: While you can take withdrawals from your Roth IRA at any point, you must wait for up to five tax years and be at least 59 ½ years old to avoid paying taxes or penalties.
Is There A Cost To Having A Brokerage Account?
If you operate a brokerage account, you will be charged transaction charges such as commissions, markups, and additional fees linked to specific assets.
Contact Information:
Email: [email protected]
Phone: 8668727470
Bio:
Mark Zimmerman, Sr currently is the Managing Member of Aurifex Financial Group, LLC. Aurifex Financials mission is to help clients realize their vision of living life on their own terms by providing credit repair, financial counseling, insurance solutions and money lending services. This is accomplished by using a holistic approach. After hanging up his uniform after 22 years’ service in the military, Mark still had a desire to help others and so he created Aurifex Financial.As part of Accredited Financial Counselor (AFC) credentials, Mark had to obtain and document over 1000 hours helping others which was accomplished by helping hundreds through a local non-profit. As an independent Insurance Agency, Mark is licensed in property and casualty, home, business, health, Medicare, life and annuity products.
