hello everyone and thanks for tuning into the financial investor channel my
name is Brent and today we're gonna be going over the topic of a Roth IRA
versus a taxable count I had a viewer and subscriber leave me a comment saying
hey I am 19 years old I want to start investing in a Roth IRA or a regular
taxable count I want to mainly invest for dividends
but I feel like I may want to be able to tap into those dividends well before I'm
59 and a half and if you know the Roth IRA in order to get the maximum effect
you have to leave your your contributions you know to take advantage
of the tax-free benefits you have to hit it fifteen and a half so he asked for my
opinion so this video is going to be going towards that the Roth IRA versus
the taxable count and a lot of people go back and forth on this topic so of
course I wanted to create a video on this so taxable count versus a Roth IRA
first hour scenario we are 18 years old we have up to fifty five hundred dollars
per year to contribute towards our retirement we may retire at forty five
fifty sixty who really knows we're pretty young but we have a goal in mind
we want to retire so what is our best option
a taxable count or a Roth IRA well let's go ahead and cover some of the taxable
account benefits number one your unrestricted you can deposit you can
withdraw your money at any time for any purpose without having to pay income tax
or penalty at that time so if you invest in an IRA or a Roth IRA and you make
deposit and withdrawal deposits and the capital gains you're gonna get hit with
the ten percent penalty plus you're gonna have to pay income tax on those
IRA because that is pre-tax money going in and the Roth IRA is post tax money
going in but your unrestricted on a tax will come if you set up an account over
on Robin Hood and one finance Merrill edge Vanguard Fedele they don't have any
sort of minimum you can deposit you know some brokers out there give you actual
stock when you sign up for them and others you know you put in 100 bucks you
can do that you can begin investing if you want to
fifty thousand a hundred thousand you have a million dollars you just
inherited there's no restrictions you can go ahead and deposit it there's no
minimum requirements which we already sort of covered you know two min and max
so we already sort of cover that you can put it you can start investing with as
little as zero Oliver on Robin Hood you sign up through a referral link they
give you a free stock you don't even have to have your own money in the game
you can still have that emotional effect as a brand-new investor looking at your
investments or you can go ahead and start with much more so you do end up
paying taxes based on how long you've held your investments if you've held a
stock for less than 366 days you will need to pay the short term capital gains
otherwise if you've held it for over a year 366 days then you get that
long-term tax rate so depending on what your tax bracket is if you fall into the
22% tax bracket for 2018 then you'll actually end up paying a 15% tax tax
bracket on your long term gains but if you fall into that 12 percent tax
bracket you'll pay 0% on your long term capital gains and dividends somewhere
along those lines you know you know disclaimer I'm not any sort of financial
adviser or tax professional but you know always I'd you know talk with your tax
advisor on these questions so step-up they have a program called the step up
if you pass away and you have accounts stocks sitting within your taxable
account you had there's a step-up program where you're here's your
beneficiaries if they end up selling those investments they will get it taxed
as if you had bought them at the price the day you died so today Apple was
worth two hundred and seventy nil or something like that and I pass away and
it goes to my child and he decides he's gonna go ahead and sell off the stock
you know my wife needs the money at the time she's gonna go ahead and sell off
the stock well instead of paying capital gains where I bought Apple say at a
1:160 she'll only get taxed on the capital
gains from that point at one two hundred and seventeen dollars tax loss
harvesting you can actually offset up to three thousand dollars if your ordinary
income with investment losses per year so if you do horrible investing in stock
such as Sears General Electric you know some other ones that have tanked out
there say you bought a bunch of these weed socks growth stocks at their peak
you know a Mt canopy growth when they were all over
the media getting blasted and then they fell by 20-30 percent well you can
offset some of your losses by up to three thousand dollars per year and I
believe it rolls over maybe one or two years you can also decide when to
withdraw so if you've hit sixty years old there is a time I know in the IRA
you have to begin withdrawing in the IRA at 70 and a half somewhere in that range
but as a taxable account you can actually leave your money in there if
you see that you have to withdraw money up your IRA and it's going to be bumping
you up into a higher tax bracket say normally you're in that fifteen percent
tax bracket twelve percent tax bracket which means that you're going to be
taxed at a much lower bracket but if you are having to withdraw ten or fifteen
thousand dollars automatically out of your IRA because of your they're forcing
you you can go ahead and hold off from pulling money out of your taxable
account lowering you into that tax bracket instead of bumping you up into
that twenty five percent tax bracket where your dividends will then get taxed
at 15 percent instead of zero percent so you can actually just kind of decide
there there's a bunch of other those are the main benefits of the taxable account
you will be being basically paying taxes every single year depending on how long
you've held the investment if you don't sell the stock then you don't pay taxes
that year because you've never sold it but if you earn dividends from that
stock and depending on your tax bracket you will either pay zero percent or a 15
percent tax bracket you no taxes on your dividends the Roth IRA benefits it
becomes you know number one it becomes 100 percent tax-free withdrawals at
retirement so once you hit retirement at fifteen and a half and you've had the
Roth IRA account open for at least five years all your capital gains your
dividends your interest your MLP distributions you know capital gain
distributions that all becomes 100% tax-free tax-free
also during that whole time that you've been invested in the Roth IRA all the
capital gains all those dividends all the interest that's being paid out to
you and it's being reinvested it becomes it's basically built up much faster it's
tax-free investment growth so if you get paid dividends you're not having to pay
taxes on those dividends per year you're not having to pay taxes if you decide to
take a little bit you know the edge off Apple Apple shut up 40% of your
portfolio you sell off a little bit of Apple you don't have to worry about
paying capital gains on it you can move Apple you know sell off some of your
positions to kind of move your money into a loss less volatile stock or a
company that recently took a huge dip you can go ahead and do that don't have
to worry about paying taxes that money would stay within the account building
up for you and tell you he hit that age of 50 and a half or you'll be able to
take advantage of the full capital gains dividends being reinvested in your
portfolio you know compounding effect much better there number three there's
no requirements on distribution such as an IRA the the taxable count doesn't
have a requirement but if you invest in an IRA then there is a age at seventy
seventy and a half where you do have to begin taking with withdrawals and also
at 70 and a half you can no longer deposit towards your IRA whereas a Roth
IRA you can continue to deposit so long as you're making some sort of income the
Roth IRA if it's been opened at least five years and you kind of croak at you
die it becomes tax-free to your beneficiary
so say over in the next five years I put in five you know five thousand five
hundred dollars that's twenty seven thousand dollars after five years and I
kind of you know I kick the bucket my beneficiary my wife my child they'll
be able to take advantage of all the capital gains the dividends within that
portfolio 100% tax-free after five years cow number five you can withdraw your
principal contributions at any time because you've already funded it with
after-tax dollars so Roth IRA you get tax on your money you know your
w-2 money you get that income going into your bank account you move that money
into your Roth IRA that's already taxed you don't have to worry about you know
if you do withdraw your contributions you can do it at any time you're not
gonna get penalized on it such as you would on a RA so if you deposit it you
know over five years you deposit $27,000 you decide hey you know I'm gonna go
ahead and put this towards a down payment on our home you can withdraw
those contributions at any time because that's already after tax money going in
and number six you can actually use the funds penalty-free towards a higher
education so if you want to use that money towards certificates licensing or
college you can do so you know make sure to check with your advisor to see if it
actually work towards that program but you could do it tax-free I'm not sure if
you could do it towards your children but that's something to kind of figure
out there I know you can definitely use it for yourself so in this scenario
going back to our scenario this individual will say was 18 years old the
Roth IRA gets the full benefits being 100% tax-free at the age of fifteen and
a half just kind of bumping it up to sixty that is 42 years of investing in
the annual rate of return currently we'll say seven to ten percent three
percent inflation we'll just say 7 percent is our annual rate of return
we're gonna be contributing for 42 years from the age of 18 to 60 that's we're
also planning to kind of kick the bucket at 90 you know average lifespan of a
human is eighty seven ninety so we'll say that we're gonna be saving up an
ambassador at sixty and then have 30 years of withdrawal after we've decided
to take advantage of a Roth IRA our current existing balance at the age of
eighteen is zero and we're gonna be making fifty five hundred dollars every
year in contributions these contributions are going to be frequently
every year and once we retire we're gonna be withdrawing our money monthly
because we want to be able to use that money you know January we pull out our
money we use it towards January February we pull out our money we use it towards
February and so on our current tax brackets during these contribution
you know I just used me for the scenario I sit at a twenty two percent tax break
and go into 2018 in retirement I'm gonna go ahead and say that we don't really
know we can't plan for taxes in the future who knows what will happen with
taxes but I went ahead and just continued to keep it at 22% because in
retirement I want to be able to with you know have the same live the same
lifestyle that I'm currently living or a little bit more and I'm aiming for 22%
right now it could be higher you know tax brackets in the future we could go
to a whole different kind of society where we're getting taxed at 40% 50% who
really knows so I just went ahead and put 22% there so here is our results oh
here's your tax brackets depending on how much income you currently make or
your future you know are you gonna be married in future are you gonna be
single so here if you're in the 22 percent tax bracket and you're married
you're making between 77 and a hundred and sixty-five thousand dollars if
you're married you're gonna get in that bracket if you make more than 38 to
eighty two and if you are single which is over here your tax brackets as well
so those are the sort of taxes you can write it down in your head on a piece of
paper okay so here are our results in a taxable count after you've been
withdrawing for 42 years from the age of 18 depositing $5,500 every single year
at the age of 60 when you decide to you know because you want to take advantage
of having a taxable account you're gonna have eight eight hundred and eighty four
thousand four hundred and seventy one dollars and seventy seven cents you are
monthly withdrawal because this is you're gonna get taxed on this money
it's going to be four thousand nine hundred and twenty six dollars and
eighty seven cents every single month and after 90 years you know from your
total withdrawals taking out taxes from you know from your start point till your
end point at the age of 90 your total portfolio would have actually have grown
to about 1.7 million dollars now if you invest it in an IRA that's the tax
deferred account you you actually write off some of your taxes you don't have to
pay taxes on the money going in you're still depositing that $5,500 per
year your balance at 60 has 1.3 million dollars that's gonna leave you with
around six thousand eight hundred and ninety one dollars and 15 cents of
monthly money going to you every single month at the age of sixty your portfolio
after you know those 90 years when you croak the bucket at 90 your total
withdrawals from your portfolio would be 2.4 million dollars that's after taxes
because you'd be paying that those twenty two percent taxes on that money
coming out and if you had invested in a tax-free account you know a Roth IRA
Roth 401 K you've been depositing $5,500 per year at the age of sixty you'd be at
that 1.3 million dollar area same as the IRA only your monthly income would be
eight thousand eight hundred and thirty four dollars and 81 cents that's a
difference of two thousand dollars just because you decided to you know put in
after-tax money now versus you know trying to defer some your taxes who
knows what tax brackets will be this is in the twenty two percent tax bracket if
you think you're going to be in a much higher tax bracket in the future then
this is actually going to be much less I don't plan on saying that 22 percent tax
bracket I plan on going and growing my income over the next year's so here your
total withdrawal after you've been investing up until sixty and you've been
making withdrawals all the way until 90 is 3.1 million dollars so that's a huge
difference between an IRA and a Roth IRA and just about double a taxable account
so you can see a huge difference there in your monthly withdrawals with a
taxable account any tax-free account pretty big difference there now say we
want to go ahead woops I went the wrong way let's go ahead and say that we're
gonna retire at forty five you know we've done a really good job of
investing between the age and 18 and 45 we boss and really set along the way you
know we've we've had extra income we bought real estate we don't really need
our contributions do you wait till the age of 60 so we're gonna go
ahead and decide to retire at 45 from the age of 18 till 45 that's 27 years of
investing in a Roth IRA you're putting away $5,500 per year at him you know by
27 years you'd have deposited a hundred and forty thousand five hundred dollars
of your own contributions that's the positing $5,500 per year for
27 years your total balance at the age of 45 is
four hundred and thirty-eight thousand three hundred and thirty-seven dollars
and twenty-nine cents a hundred and forty eight thousand of it is your
contributions which remember the Roth IRA can withdraw their contributions at
any time penalty free and no taxes so yours until the age of sixty to take
advantage of the Roth IRA you know the extra remaining money in the account
that's 15 years so we have 15 years we have to kind of let some of our capital
gains dividend set in the account but we have a hundred and forty eight thousand
dollars of our own money sitting in that account we divide that by 15 that's the
number of years remaining till age of 60 that's nine thousand nine hundred
dollars for the year you know split it up per year we divide that by 12 we can
actually withdraw eight hundred and twenty-five dollars per month of our
original contributions up into the age of sixty now I'm not saying you should
do this but this is an example giving you know kind of my opinion if you have
rentals and you actually want to retire you want to take advantage of the Roth
IRA because you don't want to take the full advantage of the whole compounding
of it because you have other stuff that offsets you you know me you may have
gotten like a two million three million dollar portfolio of real estate you're
pulling a hundred thousand two hundred thousand dollars there of cash flow this
is just extra money that you don't really need inside the Roth IRA so you
can go ahead and pull eight hundred and twenty-five dollars per month over the
next 15 years of your original contributions now say you want to retire
and set at 50 you know we don't really know when we're gonna retire I'm 33 this
individual is 18 I actually want to retire at 45 as well so here in this
example we're going to age 18 to 50 that's 32 years inside the Roth IRA
that's $5,500 per year over two years that's a hundred and
seventy-six thousand dollars of our own money going in fifty five hundred elves
per year over thirty two years are you know estimated balance at that point is
six hundred and forty eight thousand six hundred and thirty three dollars and
eighty two cents when we you know when we hit the age of fifty how many years
do we have until we can take the full advantage of the account that's only ten
years so we take our original contributions of a hundred and
seventy-six thousand divided by ten years remaining that seventeen thousand
six hundred dollars per year that we can withdraw of our original contributions
if whatever reason we needed to divide that by twelve to get our monthly rate
of one thousand four hundred and sixty six dollars per month that we can
withdraw over original contributions penalty free tax-free because we've
already been tax on that income so now after you've hit sixty you know after
ten years of taking advantage of the the we've pulled out our original hundred
and seventy six thousand dollars of our own contribution we may still be
contribute in there you know we're not taking it out completely we're still
allowing money to reinvest in these accounts so by the age of sixty we will
then be able to take advantage of the capital gains the dividends the interest
that was actually made in that account you know using our contributions plus
our capital gains you know from the account so it would all compounded
during that point we may still have a balance around you know six hundred and
forty eight thousand to one million or 1.3 million dollars in that range so at
that point at sixty we will still be able to withdraw money tax-free because
that's the whole point of that account so that is basically all I wanted to go
over in this video is basically kind of covering the taxable account versus the
Roth IRA the whole point that people make an investment in a taxable account
is they don't know when they're going to retire but if you plan on retiring
somewhere around 45 or 50 you're still putting in a hundred and forty eight
thousand a hundred and seventy six thousand of your money that you can
withdraw at any time without penalty without having to pay taxes on that and
if you go through this and you kind of see your drew you can do your own math
of how long maybe you want to retire at 35 or 45 or 40 or 50 or 60 and we've
already done our 60 scenario you can see the huge differences here if you decide
hey you know my plans didn't work out I'm not gonna retire at 45 I'm not gonna
retire at 50 if I just let my money sit there until 60 I'm gonna be retiring
with 1.3 million dollars that's gonna get me an monthly cash flow of eight
thousand eight hundred and thirty four dollars and 81 cents so that is all I
wanted to cover in this video I hope you guys did like it if you did like it give
it a thumbs up if there's any questions comment let me know in the comment
section below if there's something I missed or had an area with let me know
in the comment section below and you know quick disclaimer I am NOT a
financial adviser or tax professional this video is for fun and entertainment
I was asked a question of my opinion between you no taxable count and a Roth
IRA I 100% support the Roth IRA as the main account of investment if that is
your current retirement vehicle with a stock market the Roth IRA is probably
your best option to retire either early or late 100% tax-free you can see how
this will work if you actually decide to end you know retire at 45 you can see if
you decide to retire 50 and the whole advantages of the Roth IRA there if you
end up dying at some point your benefits beneficiaries will actually get all of
your capital gains dividends tax-free so that is it for this video and you guys I
hope you guys did enjoy it let me know in the comment section below if this
video did help you in any way share it with your friends and thank you for
tuning in to the financial ambassador Channel if you are brand new to the
channel hit the subscribe button hit the thumbs up I'm N thank you guys for
tuning in I will see you next time bye
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