Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

7 Benefits Of Brokerage Accounts (Superhero)

• Ari Taublieb, CFP®, MBA • Episode 279

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Forget everything you thought you knew about retirement planning. While 401(k)s and IRAs get most of the spotlight, brokerage accounts can be a powerful tool for flexibility, tax savings, and early retirement.

In this episode, you’ll learn the seven key advantages brokerage accounts offer, including how a married couple could generate over $126,000 in tax-free annual income, how heirs can inherit appreciated assets without paying capital gains tax, and how these accounts provide penalty-free access to funds before age 59½.

Ari explains how brokerage accounts can bridge the gap for early retirees, solve the “qualified rich, cash poor” dilemma, and enhance estate planning. You’ll see how combining retirement accounts with brokerage accounts creates tax efficiency and freedom that traditional strategies overlook.

Listen now to learn how brokerage accounts can accelerate your retirement plan and give you the flexibility to enjoy life on your terms.

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The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.

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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.


Speaker 1:

Brokerage accounts, or, as I like to call them, superhero accounts, are, in my opinion, the best account if you want to retire early, and I'm going to go through seven reasons why so that you can see how they might really change your retirement in a big way. Now I have a favorite reason for them and then I have a financial favorite reason, which you might think is the same, but they're different, and I'm going to tell you why. So if you look at my screen here, this is my important numbers sheet. You they're different and I'm going to tell you why. So if you look at my screen here, this is my important numbers sheet. You guys can get all of this and more in the Early Retirement Academy. It tells you everything you need to know Current tax brackets, deductions, social Security and if you go down here to the long-term capital gains tax section, you can see you can pay 0% taxes if you're married. Finally, jointly up to $96,700 or $48,350 if you're single plus you get the standard deduction. So if you're married and your standard deduction is the one you're taking instead of itemizing at $30,000, and you want to take advantage of this $96,700 long-term capital gains tax bracket, you could theoretically generate $126,700 and not pay any taxes.

Speaker 1:

Well, that's amazing. What's an example of that? Well, let's just pretend. Keep it real simple. You bought Apple stock for $1,000 and it's grown to $150,000. That's amazing. And if you retire at 55, hypothetically you have no other income coming in. Now, maybe you do, maybe there's rental income, maybe there's part-time income, maybe there's inheritance. But just for example's sake, pretend there's not. What you can do is you can take your $1,000 that you bought Apple for, and it grew to $150,000. Well, you have $149,000 gain. Theoretically, you could sell your entire Apple position, and $126,700 you would not pay any taxes on. But wait, didn't? I have big gains, don't? I have to pay taxes? Not in this case. Now depends where you live, so you need to make sure you're aware of state taxes as well, but on the federal level. The amazing thing about this is the first 126,700, you pay 0% taxes on, and then anything beyond that. You would then be in the 15% bracket. So that's the first reason a superhero account is incredible. Now, that's my favorite financial reason. The real favorite reason is flexibility. Imagine you max out your 401k and you have $3 million. And now you're 52 and you want to retire. Well, look, you're gonna have to pay crazy penalties and taxes to get access to that money and you might be over your boss or commuting or deadlines and just want to be done. So there are tons of amazing benefits to 401ks and Roth IRAs, but this brokerage, this superhero account, is so often overlooked.

Speaker 1:

I have a separate episode of how do you invest in your superhero account. You could see over 50,000 of you resonated with that episode because it's how do you actually invest in it? Today I'm talking about what are the benefits of it. So make sure to check out that episode if it's of interest. Let's get into today's episode.

Speaker 1:

My name is Ari Talbleed. I'm a certified financial planner, host of the Early Retirement Podcast and Chief Growth Officer at Root. I love helping people optimize what they've worked so hard for to retire early, aka spend more time doing what you want to do. So first, benefit flexibility Unlike 401ks, roth IRAs. Benefit Flexibility Unlike 401ks, roth IRAs, 403bs, 457s all these different numbers that someone made up once so that they get to feel really smart by having a 457b.

Speaker 1:

The reality is this brokerage account. This is total flexibility. Now what's the con? Well, the con is you don't get a benefit when you put money in. You don't get a tax benefit. You get a benefit that, if you want, you can access that money whenever you want, but you do have to pay taxes unless you're using that tax gain.

Speaker 1:

Harvesting that's the name of the strategy. I went over at the beginning to pay $126,000 tax-free and most people, by the way, they don't do that. Most people there's part-time income or social security or rental income and they're still working a little bit. But what they're able to do is they're able to maybe pay 0% taxes on a $20,000 gain in one year and then 40,000 the next year and then 10 the next year. So you can get strategic with it.

Speaker 1:

So number one is flexibility. There's no limit. You can put as much money in, you can put $10 trillion in and the government will never say anything. So I find most people who reach out to me they are qualified rich, cash poor. The majority of their money is in a 401k or IRA and they don't have enough in that brokerage account, which is your best account way, how it works. When you withdraw from it, it's as if you're just making more money. It's called ordinary income. So if you want to spend $100,000 in retirement and it's all coming from a 401k, you pay taxes, just like you can see on my screen here. If you take $100,000, the first 10% is applied to the first $23,000, between $23,000 to $96,000, 12% then beyond that 22. And then, of course, state taxes.

Speaker 1:

Number two it's a great bridge for your early retirement. What if you retire at 57? Great, and most of your money's in a 401k and you don't have access to what's called the rule of 55 because you retired at 53. But most of your money's in a 401k. You can't really take it in. You can, but you don't want to pay the taxes and penalties, trust me. So now you need money to act as a bridge until 59 and a half, when you can start pulling from your 401k or IRA, hypothetically. So a early retirement account bridge, like this superhero or brokerage account or what some people call after-tax account, or some people call it a joint account or individual they're all the same exact thing. It's just money that you already were taxed on, that you're putting in to whatever you want, so it can grow or not grow and help as a bridge until you can access your qualified money in your retirement accounts.

Speaker 1:

Number three is capital gains control. I mentioned this already, but the fact that you can choose your income is powerful. If you have a brokerage account, you pay capital gains taxes. So look at it like this. Let's go to my screen again. Pretend you have $100,000 in a 401k that you're pulling from. You're going to pay 10% federally on the first $23,000, then 12%, then 22%, excluding standard deduction in this example. You pay on this scale here, so 10, 12, 22. So some dollars are taxed at 22%. If you're taking $100,000 from a long-term capital gains tax meaning you put money in you've held it for at least a year in that position. You bought Apple stock for $1,000, it's now worth $101,000 and you held that for over a year. The first $100, you could see 96,700 is at 0% and then you go to 15%. Then, if you make over 600,000, you're at 20%. 20 is still less than 22. And I'm a CFP, so you guys just saw that math right there. So you can see capital gains control is powerful.

Speaker 1:

Number four is tax loss harvesting opportunities In a 401k. You can't even do tax loss harvesting, so I'll have people reach out and go I'm gonna do some tax loss harvesting. My neighbor does, it sounds so cool and all they have is an IRA. I go you could do it, but you'd be spending a lot of time and it would do nothing. And they're like well, I saw you could like do a lot and you can even carry over $3,000, even if I harvest more losses. So if I bought Apple stock for $1,000 and then it went to $10,000 and then it went to $7,000, technically that's a loss I'd say, well, no, it's still a gain. But if we were to take another example $10,000, apple stock you bought it. It's now worth $7,000. That is a $3,000 loss. You can't actually harvest that loss in a 401k. You can in a brokerage account. So you can use those losses to offset other gains, such as a capital gain, such as selling your home or condo or stock or many different things. So that's the fourth reason.

Speaker 1:

Number five is diversification. Your 401k, I'm going to guess, probably has 10 or 15 options that you can choose from, unless you want to go into brokerage link and customize it and get super fancy, which is a huge hassle. So the cool thing about a brokerage account is you can invest in whatever you want, literally the entire investable universe ETFs, mutual fund stocks, whatever you want you can go do and you don't have to go through your 401k at Fidelity or Vanguard to do so, go do, and you don't have to go through your 401k at Fidelity or Vanguard to do so. So an important point on that if all your money is in a target date fund because you want to retire in 2040, the reality is it might not be diversified properly, because you know the 401k has 15 options. Maybe their equity fund's great, but their fixed income or bond fund isn't great. You're still going to hold it because it's the only one you want. You don't want all equities. If you're thinking, maybe you're going to retire soon, most likely. So because of that, a brokerage account is an amazing vehicle.

Speaker 1:

Maybe and I've seen this happen successfully many times what you would want to do is actually put all your money that's in a brokerage account in a bond fund, because you could choose the bond fund you want. It could be exactly what you want and then you could have all equities in your 401k. So you're like well, why would I do all equities? Well, what most people do is they have their 401k be 80, 20 and their brokerage account be 80, 20, but that's not actually the best way to execute what's called asset location, not allocation location, and in your 401k. You might go well. The bond fund really sucks. Here. I love the equity fund. I'm going to be 100% equities. So if I'm in a neighbor or friend, look at my 401k, they think I'm crazy. But what they don't know is actually have a brokerage account that's invested extremely conservatively and they're offsetting each other for an overall 80-20. You're really making the most of all your different assets.

Speaker 1:

Number six is liquidity. If you're going to retire, you're going to want to travel. Most of you want to travel. So what you like to do is have a certain amount of money set aside for that traveling. So I'll encourage people if you're going to retire in the next five years, set up a brokerage account. You might want to invest it. So it's growing, not like crazy growth, not like a Roth IRA, but growing in a way that the money is still going to be there for you. It might fluctuate a little bit, but it's not going to mean if markets go down, you can't travel and it's not going to mean you're going to have $10 trillion more because it's going to do so well and you hit the one big winner.

Speaker 1:

So a brokerage account is total flexibility If you put $100,000 in there for two years of travel, just as an example. Don't get mad at me. Some of you are like how on earth could you spend $100,000 in two years? Look, I have clients who do that in six months and I have clients that would put $100,000 over 10 years. So no right or wrong, but let me know in the comments what you like to travel with in retirement, how much you need. And, as you can see for me, even explaining this, I get so emotional about it because I want you to travel and enjoy your retirement. If you are putting that $100,000 in, maybe it grows to $110,000. Maybe it goes down as far as $90,000, but that might be a trade-off you're comfortable with and you don't have to pay taxes since the money's already been taxed.

Speaker 1:

And then number seven estate planning flexibility. When you have a brokerage account, you receive what's called a step up in basis, not you, but your child or neighbor or heir. So if you put a hundred thousand Apple stock and it grows to 10 million when you pass away hopefully not for a very long time your children don't pay any taxes. They can inherit that and it's as if they bought it for 10 million or 10 trillion or whatever I said. So that's what's really cool. It doesn't work that way with a 401k or an IRA. If they inherit that there's a schedule, it gets complicated.

Speaker 1:

I've done many videos on it, but a brokerage account is awesome for this reason. So hopefully this video and podcast depending on wherever you're listening to this was helpful. I know sometimes when I'm recording these episodes and they're podcasts and I say look at my screen. Right here, you're like well, I can't see your screen. I'm driving, so don't get in an accident, don't try to look and go to YouTube and find the exact timing. I try to make them so that, no matter where you're tuning in from on YouTube or listening that you can understand, because I'm explaining it and I love helping you all. So thank you for digesting this content, however you do, whether it be through the podcast or YouTube, I love this stuff. If you want to work with Root because you're like wow, I can tell you guys love brokerage accounts way more than I do. This is, of course, what we specialize in Tax planning, estate planning, withdrawal strategy, healthcare, all that good stuff Go to our website, rootfinancialcom and hopefully we can help See you guys next time.

Speaker 1:

Thank you all, as always, for listening to the Early Retirement Podcast. I love getting to host these shows and make different content for you guys every single week. I've not missed a single week in years and that is because I love getting to do this. Now, please be smart about this. Before you actually execute any strategy that you see me talk about or hear me talk about, should I say Please talk to your financial advisor, your tax preparer, your estate attorney. Please be smart about this. None of this should be construed as financial advice. This is for fun, educational, informational purposes only. Once again, just quick disclaimer here. Guys, please be smart about this. Appreciate you listening, as always, and you can, of course, submit a question on my website, earlyretirementpodcastcom, if you, of course, want me to address a specific case study or topic. I will not promise I can get to it, but I respond to every single person and if I find it will be helpful for a lot of people, I will absolutely make an episode on it, at the very least give you some insight. That's it. Thanks, guys.