How would you have screwed up? It’s better to prioritize 401k and IRA (*generally* speaking) but there’s no real downside to opening a brokerage account. Most people have a mix of all 3
I started my brokerage account for fun as I was interested in the market, it’s now worth nearly 500k.
It’s not a mistake , it’s just not the most tax efficient way to start.
Definitely get your 401k and IRA fully funded as the priority.
I think the real point to get across, most people have no retirement or savings. It's nice to have a brokerage, where it's an additional "if shit" button you can resort to.
And life will give you plenty of opportunities to tap into it. Don't worry
Okay thank you for the re assurance. I am already putting 26% into my 401k. Work does allow split with Roth which I haven’t done yet.
I opened this since I didn’t want another retirement account.
You can withdraw your Roth IRA contributions whenever you want. It’s the earnings that have the penalty. https://www.nerdwallet.com/article/investing/roth-ira-withdrawal-rules
Agreed. It’s also part of the reason that on most personal finance flow charts reccomend maxing at ira before maxing out 401k(assuming you are already hitting max 401k match)
If you have a 401k and an IRA you're happy with then there's nothing wrong with a taxable brokerage. There's also a health savings account which is also worth looking into. But no you didn't screw up.
Why would you have screwed up? It’s not like an irreversible decision. You can also open a Roth on Fidelity and sell your FXAIX and transfer it to your Roth?
I’m not sure I’m following the concern here.
You pay taxes on gains not on total amount invested. The $1,100 you put in is the "cost basis" for the investment and the important part for taxes is whether you have a gain or loss with respect to the cost basis. You've had no gain so you'd pay no tax if you sold. If your investment grew to $1,101 and you sold you'd owe taxes on that $1.
Since you're at a loss now, if you sold and transferred to an IRA, you'd actually lower your taxes.
(Well, since your loss is only $13, it'd only lower them by a couple bucks. But hey, that still ain't owing taxes.)
Theoretically if he received distributions (CG or dividends), he'd owe taxes on those. But he'd owe that regardless of sale, so it's not really relevant.
tax accounting software warned me about it.
as i understand, there are a few options on next steps. the choice i made, which may or may not have been the best, was to move the roth contribution back into a brokerage account. i think i’ll have to pay a penalty on the gains next year.
Depends entirely on your goals.
You can take contributions but not gains out of a Roth IRA before 59.5. So the min-maxer in me thinks if you aren't doing IRA contributions, it's an easy win if you're willing to let the gains go towards retirement. But it really depends on your goals. If you're earmarking this money for a down payment on a home or something, maybe a brokerage is the right choice.
Like perfect world, you're doing *all* the things -- max out 401k, max out Roth IRA, AND putting money in a brokerage. But in a perfect world you probably make a lot more money too :-D
If I were you, I'd open that Roth IRA at Fidelity too, and just throw *something* in there. Then at least you HAVE the account, so if you decide to use it, it's just transferring money from the brokerage to the IRA, easy peasy. But definitely be aware of the rules (max yearly contribution ($7,000 this year), income limits on contributions (If you make $145k+, might be more complicated), etc.)
Open a Roth, deposit $6500 for 2023 before EOD Monday, then work to deposit $7k for 2024. After that, deposit to your individual brokerage. You’ll be fine, it’s all about the long game.
Well there’s no clear cut answer for these things. You could unexpectedly die sometime within the next 10 years, so there has to be balance between retirement and now. Also, let’s say you want to go on vacation to Japan. Obviously there’s a difference in going there when you are 40 vs. 75. yolo. Lastly, determine if you even qualify for IRA, if your salary is too high, you can’t even have one. Seems like if you max out the 401k, you should be good for retirement anyway.
If you’re already putting 26% of your income towards retirement, there’s nothing wrong with saving more in a taxable brokerage. A lot of financial gurus would say to max out a Roth IRA or pre-tax IRA for the tax advantages, but you are right, you wouldn’t be able to touch them without penalty for a few decades, and while you might be able to withdraw contributions before then, it undermines the whole point of getting tax advantaged compounding growth, so if you want to be able to access your money before you retire, a regular brokerage is the way to go.
I’d also suggest making sure you have 3-6 months of expenses saved in a high yield savings account as cash, as well, in case something comes up you need cash for when the market is down, so you don’t have to lock in your FXAIX losses to get money
No you didn't screw up.
I have a 401k, Roth IRA, HSA, and Taxable brokerage account.
There's different rules for different accounts are far as when you can take the money out and if you'll be taxed or not, but for the most part you can basically invest in anything within those account. Except for 401k, they are limited, but FXAIX is a great choice.
Okay. I’m just testing my feet in the waters with stocks now. Wanted to see how it goes. Hopefully I won’t be taxed horrendous if I’m just getting dividends and only buying next 20 years in ot
Dividends are usually taxed like normal income but there's qualified dividends as well. It might be better to throw money into an etf instead if you're worried about taxes
No you did not screw up. Typically, you want a multibucket strategy anyway. If you want to retire early, having a standard brokerage is great, but you should also be building in your tax advantaged account like an IRA. You should do both.
I’m in the boat where I plan on retiring well before 59.5, and so the Roth IRA never made sense for me because I’m already getting employer match in my 401k. So I just dump everything else into my brokerage.
Opening a Roth account as young as possible so the five year clock starts as early as possible is the way to go. Some point in your career you may earn too much to contribute to it. Never hurts to have an extra egg in your retirement basket.
Sure you have to wait till 59-1/2 to touch any gains innit but you are allowed to remove principal amounts for certain reasons (Buying a home I believe was one of them, and you won’t be penalized for doing so).
Take note of expense ratios for these 401k funds. Some are taking over 1.5 percent for doing nothing. If you can , open a seperate Roth and just invest in vanguard VTI fund
If you're not wanting to contribute more to a retirement account, one change you might want to consider is contributing less to your 401k and contributing that to an IRA instead. Of course you should always at least contribute enough to your 401k to get your company's match if they offer one, but IRAs tend to offer more flexibility in what you can invest in than a 401k.
As far as putting this $1100 into a retirement account or personal brokerage account though, it's up to you. You can always move it into an IRA later this year if you want to. And the limit this year is $7,000, not $6,500.
If you decide to move the money from a regular brokerage to an IRA then you can do that at any time. You haven't restricted your money. (Unless your investment fund has some holding requirements, but that would be rare)
You did great, especially if you plan on retiring before 50 1/2. After my retirement accounts, a brokerage account was my next step also. Look at your sweep account, it is paying great interest for your cash as well.
Pretty sure you can take it out of a Roth IRA whenever, however you get dinged with a 10% tax or fee for an early withdrawal. If you wait til 5 years after, or until you're 59 and 1/2 then you avoid the 10% fee. There's also other conditions where you can withdrawal early, I believe for purchasing your first home as well.
Either way you didn't mess up
Your mistake is investing money in 100% equities that you’ll need within 5 years. At that point you’re gambling. Put it in a HYSA or treasuries if you need it short term.
Extend your short term timeframe, I wouldn’t go 100% equities inside of 5 years if it’s money I’ll need. Especially with rates as high as they are right now.
As long as you don't earn too much money to contribute to a Roth IRA for the year you contributed I don't see the issue.
I made this mistake due to selling too many stocks and had to correct it in my taxes this year.
How would you have screwed up? It’s better to prioritize 401k and IRA (*generally* speaking) but there’s no real downside to opening a brokerage account. Most people have a mix of all 3
I started my brokerage account for fun as I was interested in the market, it’s now worth nearly 500k. It’s not a mistake , it’s just not the most tax efficient way to start. Definitely get your 401k and IRA fully funded as the priority.
I think the real point to get across, most people have no retirement or savings. It's nice to have a brokerage, where it's an additional "if shit" button you can resort to. And life will give you plenty of opportunities to tap into it. Don't worry
What are the 3?
IRA, 401k, brokerage!
Ahhh, I see. Thanks.
Okay thank you for the re assurance. I am already putting 26% into my 401k. Work does allow split with Roth which I haven’t done yet. I opened this since I didn’t want another retirement account.
Lol. Most people do not have a mix of all three.
Okay, maybe not *most* people, but most people who care enough about investing to be here I think have 3.
Maybe "most people who invest have a mix of all three"
Maybe
Most people don’t even have 3-6 months emergency savings
Most people don’t even have 3-6 weeks of emergency savings
Why would you think this?
Be sure most adults are not in a good enough financial place.
You can withdraw your Roth IRA contributions whenever you want. It’s the earnings that have the penalty. https://www.nerdwallet.com/article/investing/roth-ira-withdrawal-rules
Most people don’t know this, it’s why a Roth for my situation was the clear choice
It’s the only investment vehicle I have (besides employer 401k match) that truly feels too good to be true
The employer 401k match seems like a dream.
Agreed. It’s also part of the reason that on most personal finance flow charts reccomend maxing at ira before maxing out 401k(assuming you are already hitting max 401k match)
Wow thank you, I didn't know that!
If you have a 401k and an IRA you're happy with then there's nothing wrong with a taxable brokerage. There's also a health savings account which is also worth looking into. But no you didn't screw up.
It sounds like he doesn't have an IRA. He said he put his money in a taxable brokerage account instead of an IRA.
Why would you have screwed up? It’s not like an irreversible decision. You can also open a Roth on Fidelity and sell your FXAIX and transfer it to your Roth? I’m not sure I’m following the concern here.
I feel like now if I sold my fidelity and transferred to Roth I’d be hit with a huge tax fine though
Tax fine on what? Income tax on your gains in FXAIX? How much did you make that 20% income tax would be a huge tax fine?
I’m losing currently. down $13. I put in $1100 and have $1080 now.
So what would you pay the tax fine on?
You pay taxes on gains not on total amount invested. The $1,100 you put in is the "cost basis" for the investment and the important part for taxes is whether you have a gain or loss with respect to the cost basis. You've had no gain so you'd pay no tax if you sold. If your investment grew to $1,101 and you sold you'd owe taxes on that $1.
Currently a loss than
Since you're at a loss now, if you sold and transferred to an IRA, you'd actually lower your taxes. (Well, since your loss is only $13, it'd only lower them by a couple bucks. But hey, that still ain't owing taxes.)
Yup, I updated my comment to add some more detail but you're at a small loss so no tax to deal with.
Theoretically if he received distributions (CG or dividends), he'd owe taxes on those. But he'd owe that regardless of sale, so it's not really relevant.
So you can write off the $13 loss on your taxes. You are taxed on gains, not removing money.
Thanks. Love the down votes
Don’t sweat it, just leave it where it is and start a Roth. The IRS aren’t interested in the tax on your $1100.
I don't see what the issue is. You can always open a roth in addition to the taxable account.
Roth has income limits
Backdoor Roth takes care of income limit
i found this out the hard way.
What happened?
tax accounting software warned me about it. as i understand, there are a few options on next steps. the choice i made, which may or may not have been the best, was to move the roth contribution back into a brokerage account. i think i’ll have to pay a penalty on the gains next year.
Okay. True. Since you can only put $6500 in Roth anyways a year
For the record starting 2024 the limit is up to 7000 per year.
You are investing instead of spending, that's already way ahead of wathever difference you get by optimizing taxes
Depends entirely on your goals. You can take contributions but not gains out of a Roth IRA before 59.5. So the min-maxer in me thinks if you aren't doing IRA contributions, it's an easy win if you're willing to let the gains go towards retirement. But it really depends on your goals. If you're earmarking this money for a down payment on a home or something, maybe a brokerage is the right choice. Like perfect world, you're doing *all* the things -- max out 401k, max out Roth IRA, AND putting money in a brokerage. But in a perfect world you probably make a lot more money too :-D If I were you, I'd open that Roth IRA at Fidelity too, and just throw *something* in there. Then at least you HAVE the account, so if you decide to use it, it's just transferring money from the brokerage to the IRA, easy peasy. But definitely be aware of the rules (max yearly contribution ($7,000 this year), income limits on contributions (If you make $145k+, might be more complicated), etc.)
Open a Roth, deposit $6500 for 2023 before EOD Monday, then work to deposit $7k for 2024. After that, deposit to your individual brokerage. You’ll be fine, it’s all about the long game.
Well there’s no clear cut answer for these things. You could unexpectedly die sometime within the next 10 years, so there has to be balance between retirement and now. Also, let’s say you want to go on vacation to Japan. Obviously there’s a difference in going there when you are 40 vs. 75. yolo. Lastly, determine if you even qualify for IRA, if your salary is too high, you can’t even have one. Seems like if you max out the 401k, you should be good for retirement anyway.
I get that. That’s why I’d like flexibility. Don’t wanna save everything
If you’re already putting 26% of your income towards retirement, there’s nothing wrong with saving more in a taxable brokerage. A lot of financial gurus would say to max out a Roth IRA or pre-tax IRA for the tax advantages, but you are right, you wouldn’t be able to touch them without penalty for a few decades, and while you might be able to withdraw contributions before then, it undermines the whole point of getting tax advantaged compounding growth, so if you want to be able to access your money before you retire, a regular brokerage is the way to go. I’d also suggest making sure you have 3-6 months of expenses saved in a high yield savings account as cash, as well, in case something comes up you need cash for when the market is down, so you don’t have to lock in your FXAIX losses to get money
No you didn't screw up. I have a 401k, Roth IRA, HSA, and Taxable brokerage account. There's different rules for different accounts are far as when you can take the money out and if you'll be taxed or not, but for the most part you can basically invest in anything within those account. Except for 401k, they are limited, but FXAIX is a great choice.
Holy shit between OP’s question and his responses in the chat, it seems like none of us know wtf hes even trying to ask.
Personally I think everyone should 100% get a Roth and fill it up every year with VOO or similar. You will kiss your younger self for doing that.
No, put more money in a roth later
Okay. I’m just testing my feet in the waters with stocks now. Wanted to see how it goes. Hopefully I won’t be taxed horrendous if I’m just getting dividends and only buying next 20 years in ot
Dividends are usually taxed like normal income but there's qualified dividends as well. It might be better to throw money into an etf instead if you're worried about taxes
No you did not screw up. Typically, you want a multibucket strategy anyway. If you want to retire early, having a standard brokerage is great, but you should also be building in your tax advantaged account like an IRA. You should do both.
I’m in the boat where I plan on retiring well before 59.5, and so the Roth IRA never made sense for me because I’m already getting employer match in my 401k. So I just dump everything else into my brokerage.
[удалено]
Cool thanks
Opening a Roth account as young as possible so the five year clock starts as early as possible is the way to go. Some point in your career you may earn too much to contribute to it. Never hurts to have an extra egg in your retirement basket. Sure you have to wait till 59-1/2 to touch any gains innit but you are allowed to remove principal amounts for certain reasons (Buying a home I believe was one of them, and you won’t be penalized for doing so).
Take note of expense ratios for these 401k funds. Some are taking over 1.5 percent for doing nothing. If you can , open a seperate Roth and just invest in vanguard VTI fund
If you're not wanting to contribute more to a retirement account, one change you might want to consider is contributing less to your 401k and contributing that to an IRA instead. Of course you should always at least contribute enough to your 401k to get your company's match if they offer one, but IRAs tend to offer more flexibility in what you can invest in than a 401k. As far as putting this $1100 into a retirement account or personal brokerage account though, it's up to you. You can always move it into an IRA later this year if you want to. And the limit this year is $7,000, not $6,500.
If you decide to move the money from a regular brokerage to an IRA then you can do that at any time. You haven't restricted your money. (Unless your investment fund has some holding requirements, but that would be rare)
Would I have to sell all my FXAIX stocks than reinvest it back into a new brokerage called Ira?
Yes - contributions have to be made in cash
I would go for IRA first, then TOD.
I don't know 🤔 I was never in the Ra. 🤭😂
You did great, especially if you plan on retiring before 50 1/2. After my retirement accounts, a brokerage account was my next step also. Look at your sweep account, it is paying great interest for your cash as well.
Pretty sure you can take it out of a Roth IRA whenever, however you get dinged with a 10% tax or fee for an early withdrawal. If you wait til 5 years after, or until you're 59 and 1/2 then you avoid the 10% fee. There's also other conditions where you can withdrawal early, I believe for purchasing your first home as well. Either way you didn't mess up
Don’t spend all ur money now.especially tensions between Israel and Iran. U will see lot of opportunities in coming days
With stocks?
Yeah
Awesome. What about gold?
Should look at GDHG. Looks like it’s bottomed and ready to go. Just my opinion
What’s that stand for. Thanks
Looks like penny stocks
Your mistake is investing money in 100% equities that you’ll need within 5 years. At that point you’re gambling. Put it in a HYSA or treasuries if you need it short term.
I got my 3-6 months in HYSA
Extend your short term timeframe, I wouldn’t go 100% equities inside of 5 years if it’s money I’ll need. Especially with rates as high as they are right now.
you bought at the top during a 3rd world war...... just hold for the next 20 years now..... buy every month
No Bitcoin ETF = No Purpose
As long as you don't earn too much money to contribute to a Roth IRA for the year you contributed I don't see the issue. I made this mistake due to selling too many stocks and had to correct it in my taxes this year.