Where to Put Your Extra Money

By: Joe Morgan

Feb 23, 2023 | Long-Term PortfolioTaxable

Prefer to listen rather than read? Pair this post with Deliberate Money Moves Podcast: Where to Put Your Extra Money.

Ok, so, you are maxing your retirement plans, you’ve got your college funding figured out and you have plenty of money for emergencies and other upcoming expenses – but you still have money left over. What to do?

This money should be invested in your Long-Term Portfolio in a Taxable Account.

What is a Taxable Account?

A Taxable Account is one whose earnings are currently being taxed and is typically titled in the name of your Family Trust, your individual name, or jointly with your spouse. The money you put in is not taxed because you likely already paid income taxes when they were earned through your work or elsewhere, but the realized earnings going forward must be reported as taxable income each year.

How it Helps Lower Your Lifetime Tax

Since you already have retirement accounts – perhaps both Traditional and Roth – this third type of account can be used to help lower your lifetime tax by holding investments that pay lower dividends and have lower capital gains. These are our growth investments – those whose price is expected to rise and we are expecting to hold long-term so that we don’t have to pay tax on those gains until some time in the distant future.

Of course, your tax strategy should never overrule your risk tolerance, so you may end up holding some high-dividend investments in your taxable accounts, but they should be minimized.

Also, Taxable Accounts do not have any penalty for withdrawal – only the potential tax you might owe on gains.

So, what do you think? Do you have significant balances in taxable accounts? Is that a good thing or bad? Are you maximizing strategies to get your funds in the best taxable account type possible for your situation?
To share your comments, send me a direct email at joe@bestfinlife.com.
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