5 Reasons To Add Taxable Investment Accounts To Your Portfolio

20 September 2021
 Categories: , Blog

Are you already putting money away for retirement? If so, it may be time to consider opening a taxable investment account. Why should you add investments that may cause your taxes to go up? Here are a few of the important reasons to consider it.

1. Investments May Have Tax Advantages

Just because an investment account is labeled as being taxable doesn't necessarily mean it's devoid of tax benefits. Some investments, like municipal bonds, are tax-free at the federal and/or state levels. You may also qualify for investment credits for certain nontraditional investments. And when you do recognize the sale of a taxable investment, you can often take advantage of lower capital gains tax rates than your paycheck income. 

2. You Can Withdraw at Any Time

Retirement accounts, ranging from Roth IRAs to company 401(k) plans, make rules about when you can take out your money. If you withdraw money too early, you're often subject to additional taxes and penalties. By keeping your investments outside this tax-advantaged system, you can use the funds at any time. 

3. You Aren't Required to Withdraw

Retirement accounts like IRAs and 401(k) plans offer tax deferral at a price: you must generally withdraw that money on a schedule and pay the taxes. Such required minimum distributions must happen regardless of whether or not you actually need the money at that moment. However, because you have declared the taxable income and paid any taxes annually, you can choose when and how to spend the income. 

4. Investment Ranges Vary More 

Do you want to invest in different ways than those which are allowed in your company plan or IRA options? Then you'll need to switch to the broader range of investment choices available to all investors outside the retirement plan systems. These choices run the gamut from hard assets like collectibles to private business stakes to traditional stocks and bonds. 

5. Your Heirs Will Thank You

Leaving taxable investments to heirs benefits them in two distinct ways. First, they will not be required to drain the accounts within a specified time frame and pay taxes like they would if they inherit retirement accounts. In addition, they can often use what is known as a stepped-up basis to avoid paying taxes on the gains realized on taxable investment sales. 

Where to Learn More

Want to know more about taxable and tax-advantaged investing? Start by meeting with a tax preparation service in your state. They will help answer your questions so you can find the perfect mix of both investments for your goals and needs. Make an appointment today.