10 Reasons You Need a Taxable Investment Account

[jfoxcpacfp]

Saving for retirement is not limited to tax-deferred savings and I believe it is easy to overlook their importance in a well-rounded financial plan. Taxable accounts should, imo, be considered proactively as part of a comprehensive plan, rather than as a default option after maxing out your other retirement accounts. In 10 Reasons You Need a Taxable Investment Account on Physician's Money Digest this week, I've got some thoughts on how and why they should be used to grow your wealth.

[PhysicianOnFIRE]

Well done, Johanna. I'm a big fan of the taxable account; I've got as much in mine as all other investment accounts combined.

One additional piece I would add is tax-loss harvesting, which you alluded to with #7. TLH could be the subject of several articles. I've written a bit about my experiences with it, as has WCI, but I really need to sit down and write a how-to guide.

Best,

-PoF

[DarrVao777]

Great article

As a super saving W2 employee, the vast majority of my net worth is in taxable investment accounts

 

[WealthyDoc]

I have a lot more assets in taxable accounts.  I think that will be typical for most physicians since there are so many limits on the amounts allowed in tax-deferred / tax-free accounts.

[Docbeans]

Another gem from you, Johanna! Thanks for a very concise and informative piece. Have a q: what does #8 mean?... income from your taxable can be used to offset unused investment interest deduction. Would you please give an example? Thanks!

[VagabondMD]

11. If you do not have a taxable investment account, you are not saving enough.

[Hatton]

Great summary Johanna.  I second Vagabonds point that if you don't have a taxable account you are not saving enough.  I have never had the opportunity to open multiple retirement plans but I always saved into the taxable account.

[childay]

Third vagabond's point!  Nice article.

[jfoxcpacfp]

Docbeans wrote:

Another gem from you, Johanna! Thanks for a very concise and informative piece. Have a q: what does #8 mean?… income from your taxable can be used to offset unused investment interest deduction. Would you please give an example? Thanks!

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Investment interest is an itemized deduction (schedule A) and can be used only to offset investment income. Otherwise, it carries forward indefinitely until used up. Here are a few examples that may be applicable to WCI readers:

• Borrowing money from your business


• Interest on the purchase of a share in a partnership or corporation


• Margin interest on your investment portfolio

It's not too difficult to build up tens of thousands in investment interest that is just sitting on your income tax return, unused. Because a taxable account throws off dividends, interest, and short term capital gains, these can be used to offset investment interest. You can also make an election to offset long-term capital gains against investment interest.

 

[PhysicianOnFIRE]

I unintentionally wrote a nice companion piece to Johanna's article. How to Minimize Tax Drag in a Taxable Brokerage Account, also @ Physician's Money Digest.

If accepted, I will also have a guest post here on WCI about some bad choices I made when I started one, and how I got out of those.

[Kamban]

As a solo physician who could not afford to support unwilling employees who did not want retirement savings but had the "want money right now" attitude, >80% of all my savings is in taxable accounts. I only have a small 401K when I worked with a group for 5 years, and non deductible IRA that I paid with after-tax money.

[jfoxcpacfp]

PhysicianOnFIRE wrote:

I unintentionally wrote a nice companion piece to Johanna’s article. How to Minimize Tax Drag in a Taxable Brokerage Account, also @ Physician’s Money Digest.

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Great minds? Or something else?

[Docbeans]

PhysicianOnFIRE wrote:

I unintentionally wrote a nice companion piece to Johanna’s article. How to Minimize Tax Drag in a Taxable Brokerage Account, also @ Physician’s Money Digest.

If accepted, I will also have a guest post here on WCI about some bad choices I made when I started one, and how I got out of those.

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Thank PoF- that was a good article and well-written!

[jz]

Very useful concepts, jfox, to understand.   One quibble: Medicare adds surcharge of  3.8% to  LTCG , thus top rate now 23.8%

#11. appreciated assets in a taxable account are ideal for charitable giving, including a DAF.

[jfoxcpacfp]

jz wrote:

Very useful concepts, jfox, to understand.   One quibble: Medicare adds surcharge of  3.8% to  LTCG , thus top rate now 23.8%

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Yes, you're right. Could be called the "phantom" LTCG rate. As for #11, that is a good one. I guess having a list that goes to 11 won't spoil the soup, will it? I think I'll add it and post to my blog.