No better example of the Pareto Principle in action. Watch at least three times for maximum impact. What are the 45 minutes that you spend each time watching worth? Literally thousands of dollars. Well done Eric, another Master Class presentation!

You can always buy stocks that pay no dividends such as Google or BRK B. Pay no taxes until you sale them, hold them over a year for long term rates.

@rogergeyer9851

Ай бұрын

Or low dividend paying broad based index funds with very low turnover. Quite tax efficient, and NONE of the limitations of retirement accounts and (if you shop) NONE of the high fees of annuities. Thinking these through and NOT trading (or at least rarely trading) can pay off well over time, in terms of tax efficiency.

@user-ic2ch5vf6i

18 күн бұрын

I have a variable annuity with no fees and has performed very well. They're tough to find but they're out there.​@@rogergeyer9851

Thank you very much for crystalling all of these intersecting rules for tax efficient retirement investing!

This is great. Thanks for putting this out, and not degrading everyone who didn’t know all this.

Great video. One exception to holding bonds in a taxable account. If you don’t have enough room in your tax deferred to get to your preferred % of bonds, you can buy t notes with low interest rates. You can then sell them before maturity and pay long term cap gain rates.

I think I'm going to quit my job to avoid the forced income every two weeks

@stephnejele2483

Ай бұрын

not the point

Came back to this video! Fixed my taxable acct 2 yrs ago from this video! Thank you! THANK YOU!!

Very good video- worth the whole 45 minutes! About six months ago I moved all my taxable and tax-advantaged investments away from two paid managers to Fidelity (the bulk) to manage myself and Vanguard (small amount) to use the Personal Advisor Service, which costs 0.3% of AUM. I did this to learn the Vanguard way. Vanguard put all the bond ETFs in the Roth IRA's and the stock ETFs in the taxable account. They look at asset allocation across the whole portfolio so the individual Roth IRA's are not 60/40 stocks/bonds but all investments added up are 60/40. I did the same thing in the Fidelity accounts so the inherited IRA I have contains only bond funds- your explanation of "controlling taxable events" makes sense. I really wanted to put some big growers in the IRA because they'll grow tax free, but they get taken out at regular income tax rates (and not the lower long term capital gains rates) and I must take them due to RMD requirements. I did make one adjustment based on your video: I set all individual common stocks in my taxable Fidelity account to not reinvest dividends. I plan to wind down the stocks through donations to charity (no taxes and a full charitable deduction) and take the cash I would give the charity to invest in stock index ETF's; I don't like the volatility/lack of diversification of individual stocks. Not reinvesting dividends will give me cash to make the move to stock index ETF's more quickly. I went back and checked the statements from when a "pro" (national registered broker and investment advisor) everyone would recognize managed the accounts, they had access to taxable and tax advantaged accounts, and to get a 80/20 portfolio there was plenty of room to put all bond funds in the IRA account, but they put both mutual funds and bond mutual funds in the taxable account- doh!. I think between reading really good books and watching videos like this, I'll be way ahead doing things myself. At a minimum I save the ~1% AUM fee.

@rogergeyer9851

Ай бұрын

Vanguard does a really great job, given the fees and the quality of service, for their mutual funds. I manage things myself, but for the cost to service ratio, it's been just fantastic as a customer for nearly 4 decades now, PLUS great tax efficiency for taxable accounts. I've heard good things about low cost Fidelity funds, but have no personal experience with those.

Great summary. Thank you!

Great content. I made so many mistakes over the years in taxable accounts because I ignored (really,wasn’t aware) of tax consequences. One biggie was I held a 2030 vanguard target date fund that took a huge tax hit when Vanguard changes the rules in an institutional fund that forced them to sell a huge amount of stock within the fund. Took a huge capital gain hit and i hadn’t taken a penny out.

@rogergeyer9851

Ай бұрын

Yes. Even frugal savers raised to be aware of investing can completely miss tax efficiency, unless they stumble on it. I was lucky. My sister's husband complained about the magnitude of the taxes they were paying on some tech. mutual funds in the 80's I had steered them toward, based on historical performance. After reminding her that HAVING SIGNIFICANT CAPITAL GAINS was a good problem to have vs. the alternative (little gains or losses), I said that was a different issue than I'd thought about, and I'd look into it. That quickly led to finding Vanguard tax efficient index funds with low turnover or even more deliberately tax efficient funds (as a stated category) from Vanguard (which deliberately try to NEVER take net capital gains). Low dividends plus LOW turnover ends up with high tax efficiency, even for the "not a tax efficient class fund". So I advised them to switch to such funds, did so myself, and now have 30ish years of accumulated unrealized capital gains in those funds that is a massive proportion of my holdings in those funds. WIthout any limitations from tax deferred retirement accounts I maxed my (and my employer's) contributions to. Sweet.

Very informative video. I'm just wondering if you have any video or cheat sheets to list out which investment funds go to which buckets (Taxable, IRA and Roth) for retired people? Thanks

Great information again from Eric and the team. One other point to consider - if you are going to make cash donations to charities anyway, you can use a donor advised fund to pull highly appreciated shares from your taxable account. You get the deduction on the appreciated value and avoid capital gains. It's a good way to rebalance if you will donate to charity anyway.

@SafeguardWealthManagement

2 жыл бұрын

Great add! A great double tax benefit gifting strategy

@rogergeyer9851

Ай бұрын

Yes. Or if you have a serious amount to donate, you can set up a charitable trust (the one I'm aware of is a CRT - Charitable Remainder Trust). You get a HUGE tax CREDIT for years after you set it up, based on some complex actuarial formula (which the lawyer handles for you), you keep getting the income for life on the stocks, and the assets pass to your charities of choice on a stepped up basis (no federal income tax) when you die. Using stocks with a huge unrealized capital gain to go into such a trust is icing on the cake, of course. And if you're worried about your estate "losing the value" of those stocks, you can buy a life insurance policy with a similar or somewhat higher value. Your estate gets those insurance proceeds tax free -- but of course, you have the annual premiums which add up but aren't terrible if you start at a reasonable rage and health status (like in your mid 60's (standard retirement age and you've taken care of yourself). In the case of my mother, the total premiums paid were under 30 percent of the value of the insurance policy, and my dad was positively gleeful about the tax credits and avoiding the capital gains on those stocks which her mother had held for multiple decades. Obviously that isn't free to set up, nor get the annual taxes prepared (the feds carefully track such things, even when they end up with lots of tax savings). So trade-offs. But if you plan to give a good chunk of your decent sized estate to charity -- worth at least considering.

Some very great learnings / advice in this video. Thank you!

love it ! i learned a lot. i am subscribed. i need to learn more. thanks again!

I just recently discovered this channel and it is my new favorite channel. Your videos are excellent in both content and presentation. Thanks.

I loved this video. Thank you sir.

This is so useful. Thank you. I have been clearly making mistakes the past 30 years, but better late than never.

You are on the money. I explain the mutual fund disadvantages to my friends till I'm blue in the face. Well done

thanks so much for all the videos, they are always helpful. I am a self- directed investor for my retirement, the guidance is so helpful

Thanks!

Your videos always seem much more useful to me than other "investment" channels. It might be lucky timing in regard to my current situation, but I think you do a good job explaining the material. One video that I would find helpful would be an overview (or checklist) of ALL the factors involved in retirement and cash flow planning. Income tax is always there, but there's a long list of other considerations like ordinary-vs-long-term gains, the SS Tax Torpedo, IRMAA, NIIT/Obamacare, state taxes, etc. I would expect only a 2-minute overview of each item, but you could insert an on-screen link to your detailed videos on each one. This top-level video would then be like a Table-of-Contents to all the factors involved in planning, and would give people like myself some confidence we didn't overlook something big.

@RickMartinYouTube

2 жыл бұрын

watching all these videos feels like a college semester's course in personal finance/retirement investing/tax planning.

@thomasperez9794

2 жыл бұрын

Pray i

@rogergeyer9851

Ай бұрын

Far too many "investment" videos on KZread are worthless "get rich quick" guesses on SPECULATING (not investing) in aggressive stocks. That's COMPLETELY worthless, re meaningful advice, vs. actual investment advice re long term strategy, including on taxes. I wish such info. had been easy to find in understandable form 4 decades ago when I was a young man learning how to invest after FINALLY having a decent income after college.

Great info!

Thank you so much! your video is so helpful! Best actually!

Thanks for sharing this. This was extremely helpful

Loved the video (and that Wisconsin accent.)

THANK YOU

Very informative, thank you

Great video. Very informative. The only thing I disagree with slightly is dividends. For high income earners those annual dividends don’t really change my tax bracket. And if I max out my tax deferred account contributions and I don’t need to save that money from the dividends then I reinvest those dividends not by drip but by what I pick and choose to buy. Those dividends help me buy more shares of both dividend stocks and nondividend stocks. So every year I get taxable income (again high income earner regardless) but it’s already in my account that I use to buy more stock. I don’t have to take my savings from my job income to put in every year. That compounding over the years from buying more stocks that have growth (invest in good businesses for the most part) and more dividends that allows me to buy more stocks has grown my portfolio without adding that much more taxes. In addition my income has fallen over the years because I chose to go part time so the dividends dont even push me back up to my previous career high tax bracket. But imagine getting 10k a year to invest in the market, over the next 20 years that’s 200k of additional money you invested.

@rogergeyer9851

Ай бұрын

Dividends certainly aren't all bad. But he was correct that lots of them DO impact your taxable income, so he's right to point it out as a principle. I tend to balance things, but keep that principle in mind. My favorite investments are highly tax efficient funds in taxable accounts that I only pay a fraction of a percent of their value in re income tax (given my tax bracket and the dividend percentage). But I also have some moderate dividend growth stocks because over time, the yield on cost just becomes FABULOUS for good dividend growers.

Great video thanks

Great video...thank you

Awesome video

Very helpful

Learned from KZread today: Buy dividend stock Dont buy dividend stock

@rogergeyer9851

Ай бұрын

Nuance and context are very much "things". As is listening / reading a thing, plus VERIFYING sources. Also, KZread is FULL of bad advice, so ALL video makers need to be viewed with a healthy dose of both skepticism and fact checking, at least until they do a good job proving themselves.

Thanks for sharing the list of non-dividend stocks. Is there an ETF that uses that as its criteria? I assumed it would likely be a Growth ETF but having one that specifically weeded out the dividend stocks would be interesting.

ty

Are short or long term capital gains computed before or after taking your standard deduction, such as married filing jointly? This could have an impact on a LT rate of owing 0 or 15% tax on gains.

yeah, that was the question I had: I've just put 60k into conservative timed fund (Fidelity 2030) in my taxable account, in order to park the money somewhere. (The general plan is to have enough to pay off my townhouse, if I want to.) But I was looking at it and going "wait, isn't that going to be giving me taxes a bunch, as it re-balances and spits out dividends?" ....and the answer is "yes. Yes, it is." ah, well - I was avoiding ETFs as I couldn't find a conservative enough one, but I think the answer is "have a split between a general index ETF and another one" - ie, do the 60/40 split in the account with ETF's, instead of having the diversification all in the same mutual fund. Is there any short-term issue with selling it at a slight loss? it's regained most of its value over the last few days, but it's still (slighly) underwater. I've been DCA'ing into it over the past half-year, but it's still all short-term.

What about international equity ETF index funds like VXUS? Is it okay to keep them in taxable? You get the foreign tax credit but they pay more dividends than the total US does. Thanks!

How about expense ratio? Does mutual fund have an edge over EFT on that lines?

What about S&P 500 index fund in a taxable account with a muni etf?

What about index funds like VTSAX? Instead of ETFs?

I would rather pay LTCG rates on my dividends vs ordinary income tax rates in a tax deferred account.

Is there a way to get CC = closed captions?

Good video as always. One of the challenges is finding risk free or liquid investments that throw off LTCG or qualified dividends instead of interest. Obviously stocks have risk. Municipal Bonds are tax free but their return is lower due to the tax advantage. Yes I could reallocate my IRA or 401k to bonds which would free up some room to move more to stock in the taxable account but I prefer taking my risks with the money I am sharing with Uncle Sam.

If I have already mutual fund, what should I do. Sell them, pay capital gains now?

No mention of the 12% tax bracket and it's 0% LTCG/QD rate, missing in the charts? It's my favorite bracket! ;)

The first rule (don't hold mutual funds in a taxable account) does not apply to Vanguard mutual funds backed by an ETF

@saajanypatel

10 ай бұрын

whats the reasoning it does not apply to this situation? are you referring to index mutual funds (backed by an ETF), if so then i understand based on the already low turnover with index mutual funds. just checking! thanks

@patienceisalpha

10 ай бұрын

@@saajanypatel vanguard mutual funds with an etf share class also enjoy the heartbeat process of etfs

Are you sure qualified dividend income impact the tax bracket?

If I buy low-coupon -rate bonds at a relatively low price (high yield) which is possible in 2023 and occasionally now, is this a tax efficient way to own bonds?

Great video. What about people who live on their Dividends? The dividend community is HUGE on youTube.

20:35 I’m new to this, and I’m probably wrong but is this chart backwards? I thought a bull market reflects market upswings whereas a bear market reflects downswings.

Lots of good information on what not to do for a taxable account. I’m retired and am ready to start a taxable investment account. I have enough retirement income where I won’t have to withdraw from this taxable account for living expenses. I also have traditional and Roth IRA accounts I don’t need to live on. I’m 62 and would look to invest for another 20 years. I was considering a Vanguard S&P 500 mutual fund so I could invest monthly automatically. From your presentation, is my best option for a taxable investment account an ETF. Thoughts on the Vanguard S&P 500 ETF?

@robertvittetoe6158

2 жыл бұрын

@@genderfluid thanks!

@joshhoward1289

2 жыл бұрын

I am still learning but I believe a good thing about funding a taxable account is if you don’t necessarily need the funds, funds left as an inheritance is at a stepped-up cost basis. So I believe the best to leave for inheritance is 1) Roth IRA, 2) Taxable Acct, and 3) Real Estate…all inherited at a stepped-up cost basis.

Great, thanks. Towards the end yiu said Reits were good in a taxable account, which confused me, did you mean in a tax deferred account? Also, are bonds a better buy now (in a tax deferred account if course). Cheers, Jef

@alrocky

Жыл бұрын

@ 43:48 So REITS for instance *aren't* a great solution in your taxable accounts

This is a good video. Very informative. I would just quibble a bit with the notion that dividends in taxable accounts should always be avoided. Take any number of examples: my floating rate fund has a 30-day SEC yieldof 8.56% vs. a lot of municipal bond funds today list a 30-day SEC yield around 3.4%. Now compare $10K invested in 2023 in each. Even if 15% dividend tax, net $727 dollars after paying that tax for the floating rate dividends vs. $340 dividends tax-free for the municipal bond fund - is that $387 or 3.87% gain really consistent with calling it a "leaky bucket"?

Can you explain the tax difference between qualified and non-qualified dividends in an after tax brokerage account?

@jackkoziol5704

6 ай бұрын

Qualified - taxed as long term capital gains Non qualified (ordinary) a taxed as ordinary income

How about index funds? Would you treat these like ETFs or like mutual funds taxwise? Hold them preferably in taxable or non taxable/tax deferred accounts?

@alrocky

Жыл бұрын

Index funds are subset of mutual funds. He neglects to clearly address that index funds [just like ETFs] are tax efficient and acceptable in taxable account.

@charlesbyrneShowComments4all

Жыл бұрын

Indexed mutual funds are about as tax efficient as ETF. Sometimes the maintenence fees are higher than ETFs and sometimes they are not. The thing you also need to be looking at is annual portfolio turnover in the mutual fund or ETF. There are some ETFs that are indexed but also have a higher turnover ratio due to the index sampling, change in weighting of some stocks etc.

@margaretmarshall3645

10 ай бұрын

In a taxable account, I think he’s saying that an index stock ETF is more tax efficient than an index mutual fund, which is at least more tax efficient than a managed mutual fund. In a retirement account there are no tax considerations to worry about.

What is your opinion on holding dividend ETF like SCHD which is qualified dividends?

@ronloftis9080

Жыл бұрын

It's okay in a taxable account if you stay in the 12% tax bracket, which makes the dividends tax free.

Best video I've seen on this topic! Thank you. You made everything clear, concise and very actionable. I get why we should avoid putting mutual funds in a taxable account but INDEX mutual funds typically don't pay capital gains since the stocks in the index don't change much. So are they OK to leave in a taxable account?

@alrocky

Жыл бұрын

Yes index funds particularly Vanguard index funds are perfectly acceptable [very tax efficient] in taxable brokerage account. Avoid actively managed mutual funds in taxable accounts.

@margaretmarshall3645

Жыл бұрын

No, he is saying in a taxable account you should always buy the equivalent ETF instead of the mutual fund. Index mutual funds are more tax efficient than actively managed funds, but they are LESS tax efficient than the equivalent ETF.

@JP-rq7kg

Жыл бұрын

Less tax efficient but wouldn’t you rather the income with a small loss? Versus the lower distribution in the other? Assuming they both grow at the same rate? Maybe I’m missing something there

@JP-rq7kg

Жыл бұрын

Unless his point is really just to control your tax burden

43:49. REITs good in taxable accounts? They give fairly large dividends, and those dividends are taxed at ordinary income. From articles I have read, they belong in NON-TAXABLE accounts. No?

@samsmullen991

2 жыл бұрын

REITs have higher ROI and only 80% of dividends are taxed as ordinary income. Much higher rate of return than qualifying dividends for income producing.

@CC-sf8jn

2 жыл бұрын

I relistened and I think he said "aren't"

@florinachuy7092

2 жыл бұрын

@@CC-sf8jn That is correct! He said "aren't." Thanks.

@ronloftis9080

Жыл бұрын

consider SCHD for a taxable account if you are in the 12% tax bracket.

So if retired, not yet drawing SS, where do I keep cash if not something like vanguard money market paying approximately 3%?

@ronloftis9080

Жыл бұрын

short term treasuries

Great videos. Recently retired with large taxable and non taxable accounts. If you don't want to use dividend stocks for income to live on, and you are pre social security what is the best account to use for yearly income?

@ianollmann9393

Жыл бұрын

I’m in a similar boat. I’ve come to the opinion that the words “that you don’t need” are missing from this discussion. I personally feel that dividends that are needed to pay the bills in early retirement before other sources of income kick in don’t count. As long as they are qualified dividends, the tax rate is low. Ideally, this is money that the company doesn’t need, and is spinning off extra cash to make sure new investors are buying company, not more cash with their cash. That is investment efficiency. Better that money is in my pocket than theirs, is my opinion. “Theirs” is what would happen if either they kept the cash or did stock buybacks. The only problem with it is the “gains” are taxed on 100% of the dividend whereas a stock sale might be only 50% gains. However, this is also fair because the dividend is presumably reducing your deferred capital gains by 100%, so stock sales are ironically only more efficient if you never sell the stock. Anything else is just games with cost basis, e.g. tax loss harvesting. The remaining question is what to do when those RMDs and social security do kick in and you are still collecting dividends. Changing stock holdings is a taxable event.

@margaretmarshall3645

10 ай бұрын

I am in a similar situation. My plan is to use the taxable account to live off of and to pay taxes (as estimateds to the IRS and the state each quarter) on my Roth conversions, which I am making pretty aggressively now before I turn 63 and have to worry about IRMAA surcharges. I expect to keep up a lower level of Roth conversions until I turn 70 and start to collect social security. I go back and forth, but currently lean toward high dividends being ok in my taxable account since they do get the lower tax rate and I need spending money in any case. But I include them in my calculations for how much I can convert each year without bumping up my marginal tax rate on the Roth conversions.

I agree that when a dividend it paid the overall value of the paying company is reduced by the same amount as the payout. But, is the market really efficient enough to reduce the stock price to accurately reflect that reduction?

@mrbigglesworth375

9 ай бұрын

I believe he is in error on this point. Dividends are paid out of quarterly operational profit. That profit is the proceeds/purpose of that business. As long as the dividend per share is equal to or lower than the EPS earnings per share it will not have a material impact on the market's valuation of the underlying business.. ie business ability to continue to produce such quarterly profit in the future. Good luck.

Thanks for the great video! Unfortunately I have Vanguard Star Fund (VGSTX) & Bond fund in my Taxable account and now I know it's a BIG mistake to have them in taxable account. To correct it, I stopped reinvesting the dividends to use that money to invest in ETF. I was thinking transfer these funds to non-taxable account like Roth-IRA but would result in selling & rebuying which would cause tax consequences. Any suggestions?

@lip124

Жыл бұрын

Wait for a 1 year then sell it and take the hit.

@danielhatfield7304

7 ай бұрын

I know this is late but thought I would chime in before a costly sell. If you meant to say VTSAX, it should be fine in a taxable account. It's a different share class of VTI (the ETF). This helps its tax efficiency. Most mutual funds don't have this model, but many Vanguard funds do.

Loved the video. Thanks. I will sell my house soon and have some extra funds from the sale. I will do Roth conversions with this money over a few years. How do I have some protection for this money since I will use it over 3-5 years for Roth conversions? I was thinking it should go in a taxable account but after listening to this presentation this does not seem like a good plan. Suggestions?

@RickMartinYouTube

2 жыл бұрын

42:52 is his guidance, I guess.

@RickMartinYouTube

2 жыл бұрын

42:52 is his guidance, I guess - but most of his comments for tax efficiency over a longer period of time, not 3-5 yrs which is relatively short term. I noticed a few folks have been using i-bonds lately due to the rate increase. Many new vids on this onYT by advisers.

@alan30189

2 жыл бұрын

I suggest the following two options, if you want to gradually convert it into a Roth. Park those funds in a municipal bond fund for your State. That way you have income that is federal and state tax free, and then withdraw what you need each year to convert into a Roth. Those funds only make only 2%, but it’s much better than money in a bank, making hardly anything and is also taxable. For example, I live in Georgia, and have money in GTFBX, a Georgia municipal bond fund. Another option is to buy a growth stock that doesn’t pay a dividend. Make sure it’s a leader in its industry and that it’s actually growing. Hold it for a year before selling and converting it into a Roth, to avoid ST capital gains tax. Depending on your income, you might have to pay long term Capital gains tax, though.

30:00 What shoud you do with your dividends then ? Most ETFs yield dividends

@serialmigrant

21 күн бұрын

I do accelerated payments on my mortgage. Which is tax free return on investment ..

Regarding Rule 1, when deciding between VTSAX vs. VTI in a taxable brokerage account, I didn’t see much of a difference in terms of tax efficiency. Your take please?

@alrocky

Жыл бұрын

@ 10:20 Don't Hold Mutual Funds in a Taxable Account should instead read "Hold Only *_Tax Efficient Investments_* in Taxable Account." _Actively managed_ mutual funds are often tax *inefficient* however *_index funds_* and ETFs are usually very tax efficient and acceptable in taxable account. The 2 actively managed mutual funds he mentions are Front Load High Expense Ratio High Turnover and Morningstar > Price > 3 Year Tax Cost Ratio of 1.28 & 1.99: Those 2 mutual funds are absolutely horrible and shouldn't be held by anyone. Vanguard's Index Funds and their corresponding equivalent ETF share class are perfectly fine in taxable account. What you'll find surprising is comparing the 3 Year Tax Cost Ratio of the Vanguard ETFs mentioned here to their equivalent Index Funds: VTSAX = 0.38 VTI = 0.56 VIGAX = 0.16 VUG = 0.24 --- index funds better tax efficiency!

@garya2223

Жыл бұрын

Fir those two there is no difference in tax efficiency. That's one of the flaws in this video.

Hi, great video and advice about taxable accounts. My Edward Jones advisor didn't tell me about this and I'm fuming upset right now that I want him to pay my taxes. Is there any legal way I can sue my advisor?

@marybartaczewicz1961

2 жыл бұрын

Me to

🔥🔥🔥

Great videos, I've been working my way through all of yours. I agree about bonds being in tax-deferred accounts but I am shooting for a 60/40 asset allocation and my Rollover IRAs are not enough to make up the 40% so some is in a taxable account. What might you recommend in this case? Thanks

@ronloftis9080

Жыл бұрын

US Treasuries are state tax free. Could consider buying TIPS. Another option could be MYGAs. MYGAs are the insurance industry's version of a CD. Currently there are 5 and 7 year MYGAs paying 5.6 and 5.75 respectively. Also with MYGAs if you have a MYGA where you are taking the interest, the interest accumulates tax free, so it's like an IRA. If you roll the 5 year term of the MYGA into a new MYGA or other annuity, the interest and principal get rolled over tax free too until withdraw.

@ronloftis9080

Жыл бұрын

Jack, you could also could consider investing in stocks in a taxable account that put out "qualified dividends" if you keep yourself in the 12% tax bracket. The qualified dividends would be tax free.

@dmulvany

2 ай бұрын

Municipal bonds based in your own state would be free of state and federal taxes.

Great video. I always learn something new. I do need to respectfully disagree with your dividend analysis on multiple fronts. First, dividend stocks cannot be compared directly to growth stocks, as they are typically less volatile, thus they play a different role in your portfolio. For years I received and reinvested qualified dividends in my taxable account. I paid 18.8% tax vs 37% for ordinary income. If held in a tax deferred account it will be taxable later at ordinary income tax rates, which will be lower in retirement but still above 18.8%. I never sold a share of stock other than to harvest losses, therefore my basis has increased which will allow me to sell the high cost shares first either tax free or a small % taxable when retired and be taxed at 15% long term rates. For example, on one position where I have $100k of stock and $50k of basis, I can sell the high cost half and only recognize $10k of long term gain, which will be $1500 tax or 3% of the $50k.

@ron623tt

27 күн бұрын

If you live in California or New York dividends are taxed as regular income. The dividend enthusiasts rarely point this out.

@keithmachado-pp6fv

27 күн бұрын

Good point. Massachusetts too but it’s not taxed as ordinary income but long term cap gains do have the same 5% tax rate. The difference is important as I can utilize my loss carryovers against the cap gains. For purposes of my analysis, which was to refute the benefit of dividend stocks in retirement accounts vs taxable accounts, the state tax was not relevant so I ignored it.

I have a sizeable taxable brokerage account filled with dividend stocks. I plan to use the dividends to pay taxes for my Roth conversions. So the dividends generates the income / the cost of what I owe in tax when I convert. My IRA, unfortunately has done extremely well over the years and now I need to convert portions to ROTH as quickly as possible using my taxable dividends generated each year. I thought this was a good strategy. I'm 62 and retired last year. Don't plan on Using SS until full retirement. What other strategy could I use?

@oceanwaves3139

2 жыл бұрын

your situation is exactly like mine; i hope someone will answer your question

@margaretmarshall3645

10 ай бұрын

Condolences on how well your IRA has done over the years! How unfortunate. 😉 I guess he would say selling stocks or funds in your taxable account when you need the money gives you more control than collecting the dividends every year. But since you need the steady income anyway and at least qualified dividends are taxed at the favorable long term capital gains rate, your strategy sounds fine to me.

Well Eric, weren't you just prescient regarding don't hold mutual funds in a taxable account with what happened with Vanguard Target Date Funds in 2021.

@SafeguardWealthManagement

2 жыл бұрын

🔮

What do you mean by re-balance dividends?

@alrocky

Жыл бұрын

What is timestamp of that reference?

I am confused when you say that long term capital gains taxes are less than short term capital gains taxes. Here is my confusion: For a tax filer that is married filing jointly with an income of $80K/yr, they are in the 12% income bracket. On the other hand, the tax rate on a long-term capital gain of $80K for the same tax filer is 15%. As I see it in this case, the long-term capital gain tax rate of 15% is MORE than the 12% income tax rate. In this case, can you help me understand why you say that LT capital gain tax rates are LESS than ordinary income tax rates? Thank you!

@deadcityhauntedhouse9132

Жыл бұрын

Long term capital gains are taxed at zero if your AGI income is less than $89k. Short term capital gains are taxed at your tax bracket rate. Above $89k you are in the 22% bracket thus the 15% long term cap gain rate is better. Qualified Dividends are also zero tax if you are below $89k

@snowdenc

Жыл бұрын

@@deadcityhauntedhouse9132

If I don't reinvest dividends in a taxable brokerage account, what do I do with he dividends, specifically?

@mundie33

Ай бұрын

You’re paying taxes anyway but if you move it to cash you’re taking it as true income instead of income that is reinvested if that make sense. This is a decent video but I’m not sure he’s giving the whole story on dividend investing especially if you’re specifically trying not I snowball

Does this apply to SP500 mutual funds as well, as they don't have as much ins/outs of different companies, as some other small/mid cap stock etas or actively managed ones?

@SafeguardWealthManagement

7 ай бұрын

Most index mutual funds will be more similar to ETFs in terms of their pass through tax liability. The more active, the more tax inefficient in general

Aren't capital gains good if it doesn't push you into a higher tax bracket? Also, what about muni's if a person is not near the next IRMA bracket increase?

@curtissumter8223

Жыл бұрын

@@heartcomedy5 So, here was my thinking. Say I make $500 in a taxable account in capital gains. Yes, I would have to pay taxes on the $500, which if it is long term capital gain would be $75, netting me a profit of $425. If that $500 doesn't push me into a higher taxes bracket isn't making $425 better than making $0, or am I missing something?

@curtissumter8223

Жыл бұрын

@@heartcomedy5 It would be better in a Roth, but in a Traditional IRA eventually, when you take the money out, you will pay regular income taxes and not all people can have a Roth or are limited to how much they can put in like a retired person with no income or a person that makes too much money to have a Roth. Also, that extra money in a Traditional IRA may push you into a higher tax bracket when you have to take out your RMD.

Not to belabor the point, since you provide a very good explanation of the false notion that an average investor can be in a position to beat the market systematically, but I'd like to add: 1. There is an exhaustive body of research that very clearly demonstrates that trading rules and other investing strategies using public information cannot systematically outperform the market (i.e., produce abnormal positive returns.) That body of research strongly supports what is referred to as the weak form of the efficient market hypothesis. 2. During my PhD program, I had a student (Finance degree) who got a job on Wall Street with ML (the large investment firm of the same initials.) During that Spring semester, he attended an orientation for all new hires for that office. The roster was like reading a list of the top business schools in the country - Harvard, Wharton, etc. And that happens with every single graduating class from those schools. They take those talented, smart, highly educated people, stuff them into tall buildings in lower Manhattan, give them all the resources they could ever imagine having, and let them loose. To think a person can beat those people sitting at home, trading on the basis of high and low P/E ratios using their TDAmeritrade account comes close to delusional. The one concession I'll make is that short term trading is actually a pretty good alternative when it comes to feeding a gambling addiction. At least the expected value in the case of the stock market over time is positive. 😉 Terrific video. I do have sizeable holding in dividend aristocrat stocks, basically pursuing a reasonable return while managing risk. Of course, I absolutely hold nearly all the equity securities I invest in for the long term. I do also invest in fixed income securities (primarily bond funds in my 403(b) account just to balance risk.) And, finally, I do invest in CDs, but only to park larger amounts of money in the short term when I am going to need it in, say, a 1-6 month window.)

@nalinijanakiraman2481

10 ай бұрын

Excellent analysis thank you

Question: What if someone like me who is only making less in a job, clearly will put in a low tax bracket, and needed more income in order to survive, and by doing so, I need to increase my income by taking short term capital gains to keep up with the expenses at the moment??? Also, I will not rely on a 2% to 3% annual salary increase from the company, and believe that it will save me from poverty. If I needed the money in less than a year, I will be happy to take those profits if I can double my income through short term capital gains. Instead of looking for a second and third job and by increase my working hours. Of course, I’m considering to invest for long term if I have the means to do so. To take advantage for lower tax rates. For now, the salary that I can earn on a job is only enough for a single person, but not enough for a family. By the way, I got laid off from my job and I’m solely relying on short term capital gains right now. Thank you for this video, I learned a thing or two. I find it helpful and beneficial, so I dropped a 👍. Personal finance is surely personal. New subscriber here. Have a great day.

@serialmigrant

21 күн бұрын

You need to figure out emergency funds... If the stockmarket drops, and u need cash, then you lock in the losses

Dividends - what is missing in the discussion is the discipline the expectation of an increasing dividend lends to management. Lots of crummy stocks could be added to the list of companies that don't (or can't) pay dividends. Many more than the stars ( Alphabet, Amazon, Bershire, etc). Discussion is not wrong, but could be more nuanced.

What about spouses who don’t work and whose spouse earn too much to get any tax write-off benefit for contributing to an IRA? If we contribute $7,000 to an IRA, it’s AFTER tax money, and then we have to pay taxes on it again? Would you recommend that non-working spouses contribute to an IRA. We’ll have to deal with a mandatory retirement distributions (is that what its called?)

@alrocky

Жыл бұрын

Convert your traditional IRA to Roth IRA

@ronloftis9080

Жыл бұрын

just contribute to a Roth if you can. If you can't contribute due to income limitations, contribute to your 401k or Roth 401k.

How about VTSAX in a taxable account?

@alrocky

Жыл бұрын

VTSAX Vanguard Total Stock Market Index = 0.04% Expense Ratio VTI Vanguard Total Stock Market ETF = 0.03% Expense Ratio VTSAX is perfectly acceptable in taxable brokerage account

I think of my 401k as my primary retirement account and my Roth as a supplemental account, mainly because I get matching contributions for my 401k and I get compound interest and capital appreciation on the entire amount including the matching funds. I look at a Roth as building an emergency fund or extra money for extra expenses, and my 401k as my means of paying my primary bills, though I think that it makes a lot of sense for me to have both.

@alan30189

2 жыл бұрын

Only invest up to the company match in the 401(k). After that, put any additional retirement investments in a Roth. That way, those investments earn money tax free and the growth in those funds are tax free when you withdraw them. In a 401(k), they are taxed when you pull them out. Ideally, if your company has a Roth 401(k) (not many do), that’s the way to go. See if they’ll consider offering a Roth 401(k).

@tastyrick

2 жыл бұрын

You are missing some important info for choosing Roth. Specifically, what is their tax rate now and what they expect to pay at retirement. If they are in their prime earning years then they will be paying the highest tax rate they will ever pay in their life on their income. In that case you are paying too high a rate upfront when you use Roth. You need to make choices of account on a case by case basis, there is no good universal rule of thumb.

how does SCHD ETF measure up as a tax issue or decent investment?

@damemethief

5 ай бұрын

That would be considered high yield so that shouldn't be in a taxable account

@stephenhegarty6179

5 ай бұрын

@@damemethief even though the dividends are qualified capital gains?

@damemethief

5 ай бұрын

@@stephenhegarty6179 It's still a net outflow if the amount is sizable High dividend yield single stocks have the exact same issue. They'll still be qualified because you held them long enough, but they're not the most efficient solution.

Don't think rule #1 is correct, just compared distribution of VTSAX vs. VTI, VTIAX vs. VXUS and the mutual funds distributions are either as good or better.

Re mutual funds vs etfs: vtsax beats vti, and vtwax beats vt for the past 5 years. Seems like that is more apples to apples than the funds/etfs picked

Successful investing isn't about minimizing taxes. It's about finding stocks that represent increasing value over years. The tax loss harvesting assumes short term gambling or desperation during a recession. Recessions happen and depressions can. . That;s why an intelligent investor who doesn't have so much wealth that a depression wont affect his necessary income, does NOT invest all he has in the volatile market, but has bonds and other things sufficient to weather at least two. There is no reason to sell a stock that has declined in value unless you were foolish enough to buy the overvalued stock of a company with known declining value. Without selling a depressed stockcan be held in many ways long enough to rise again, patience, using it as collateral for a loan, gifting it to someone who doesn't need to cash it in for years, donating it, and making someone the beneficiary upon death of an account are the most obvious.

Don't hold actively managed mutual funds in a taxable account. Stick to index funds. ETFs are mostly indexed but ETFs are not more inherently tax efficient than index mutual funds, particularly Vanguard funds.

@SafeguardWealthManagement

2 жыл бұрын

There are still differences on average, across asset classes. Here's an article that may help - www.morningstar.com/articles/1077106/etfs-have-a-tax-advantage-over-mutual-funds

@alrocky

Жыл бұрын

The Vanguard ETFs mentioned are not as tax efficient as their corresponding index fund equivalent as per Morningstar.

I believe you said to hold REITs in a taxable account. No No No. Reits throw off dividends that are taxed at ordinary rates not dividend rates. Riets belong in tax deferred accounts.

@SafeguardWealthManagement

Жыл бұрын

Correct, do not hold REITS in a taxable account.

@alrocky

Жыл бұрын

@ 43:48 "So REITS for instance *aren't* a great solution in your taxable accounts" REITS acceptable in taxable once retired and need income for daily expenses

@dmulvany

2 ай бұрын

No, they still should be held in a Roth or tax-deferred accounts because they're taxed at higher rates. It's also advisable to keep one's income below IRMAA threshholds, so keeping REITs in Roths would help with that.

I screwed up, I will be a high income earner ($160k) from rentals and a couple million in 401Ks. There is no getting out without paying taxes. Wife and I still earning almost $300k in wages. After I hit 59, the goal is to roll out in the Federal 35% tax bracket, up to $431k. If wife stays working, it is a a small% of total income. Opinions?

@ronloftis9080

Жыл бұрын

consult a financial planner. They could possible save you 100s of thousands of dollars in taxes. It will be well worth the fee for a fee-only planner.

@gabrielleyva6969

Жыл бұрын

Sir, you have not screwed up. Joe Biden loves you.

only problem is no tax loss harvesting in ira's and roths

Interesting video, but IMO it doesn't apply to most people. Most people should be putting money into Roth accounts.

@mandypdx

2 ай бұрын

It’s helpful for us who max roth ira and roth 401k, and want to retire before 55/59.5 :)

@Rew123

2 ай бұрын

@@mandypdx You are correct

I am not 65 yet and am retired. My taxable account is where I make my income to live off. So if I take no dividends where am I supposed to get my income? I look at it as my regular paycheck. I paid taxes on my regular income while I was working so why would I not expect to pay taxes on this income.

@curtissumter8223

2 жыл бұрын

I think that what you are doing is okay. Everyone's situation is different. Eventually, you will have to pay taxes on this money anyway unless it gets passed on to your heirs, and then they would have to pay taxes on it. What he's talking about in the video, as I understand it, is to avoid making too much in capital gains, interest, and dividends in any given year, which would push you into a higher tax bracket, therefore costing you money that you could have saved.

@ronloftis9080

Жыл бұрын

qualified dividend income in taxable account is just fine for a retiree that is in the 10 to 12 percent tax bracket. qualified divs then are tax free as well as capital gains.

But in the case of ETFs one must pay an additional brokerage fee each time he withdraws money/sells shares in the taxable account.

REITs in taxable accounts @ 43,50 ??? Probably not what you wanted to mean ???

Re your VERY general statement of the first rule: Not all mutual funds are even REMOTELY CLOSE to being the same re tax efficiency. Lumping a high tax efficiency Vanguard index fund with a high turnover actively managed mutual fund is RIDICULOUS from a tax planning angle. Saying don't hold high turnover and high yield mutual funds in taxable accounts makes sense -- not ALL mutual funds, as a rule. For example, a variety of good Vanguard tax efficient admiral class mutual funds are EXACTLY THE SAME THING, re the holdings, as a Vanguard ETF. The only real difference is the ETF is easier to trade. Your purpose and overall material is great -- but you need to be CAREFUL what you say, when stating "rules". Even per your chart, the tax efficient mutual funds were roughly on par overall vs. the ETF's, so it's NOT like "mutual funds BAD" from a tax perspecitve. It's more like -- be aware what you're doing, and plan accordingly. Also, until relatively recently, ETF's didn't even exist. They require LOTS of computer power to work, which wasn't a thing until recent decades.

Until I make $57,000 a year in income my dividends are taxed at 0%. Rn I make under 50

how to unwind or strategy to swap MF (mutual funds) to ETF from taxable account - sell during downturn , anything else ?

@joshhoward1289

2 жыл бұрын

I have the same question. I need to unwind what I’ve done as well in my taxable account. I am looking at about a $27k tax bill on $180k in unrealized gains. I had sizable forced income this year. Do I do this all at once or over several years? I was also considering the same; sell during a market correction of 10-20% which has occurred in 11 of the past 20 years. Given the returns over the past 3 years a correction in ‘22 seems very likely.

@ronloftis9080

Жыл бұрын

@@joshhoward1289 you need to manipulate your income to get well below the 12% tax bracket to be able to fill up the bracket with the long term gains to the top of the bracket. So yes, sell your gains over several years. How to manipulate your income. . Contribute more to your 401k, your IRAs.

3b is weak and I don’t think it’s worth it

Correction- Berkshire doesn’t pay a dividend- Warren most certainly owns dividend paying stocks.

@SafeguardWealthManagement

11 ай бұрын

Yes, but keep in mind he doesn't own them because they pay a dividend but rather despite them paying a dividend. He is quite vocal on anti-dividend views.