In this video we’re answering the question “Traditional IRA vs Taxable Brokerage Investing – Which Is Better?” The White Coat Investor wants to help you stop doing dumb things with your money, so in this video series we answer questions you have submitted.

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00:00 Traditional IRA vs Taxable Investing
00:24 Tax Benefits
01:40 Backdoor Roth IRA
01:55 Estate Planning Benefits…(read more)

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When it comes to investing for the future, there are two popular options: Traditional IRA and taxable brokerage investing. While both offer a way to save money, there are significant differences between the two. So which is better?

Traditional IRA

A Traditional IRA (Individual retirement account) is a retirement account that allows you to make tax-deductible contributions. The contributions you make to your IRA are tax-free until you withdraw them. However, if you withdraw money from your IRA before age 59 ½, you will have to pay a 10% early withdrawal penalty in addition to income tax.

One of the benefits of Traditional IRA is that it can help you reduce your taxable income, which can be helpful if you are in a higher income tax bracket. This can help keep more of your investment return. It also allows your investment to grow tax-free, resulting in compounding returns over time.

Taxable Brokerage Investing

Taxable brokerage investing is a type of investment account that allows you to purchase and sell securities, such as stocks, bonds, and mutual funds. Unlike a Traditional IRA, taxable brokerage accounts don’t offer any tax advantages. You pay taxes on any capital gains and dividends received during the year, and there is no penalty if you withdraw money before retirement age.

One of the benefits of taxable brokerage investing is the flexibility it offers. With a brokerage account, you can invest in a wide range of assets and make changes to your portfolio whenever you want. You can also withdraw your money whenever you need it without penalties.

Which is better?

Choosing between Traditional IRA and taxable brokerage investing depends on your financial goals and situation. If you are looking for tax advantages, have a long-term investment horizon, and don’t need to access your investment before retirement age, Traditional IRA may be the better option. However, if you need more flexibility in your investments, want to access your money before retirement age, or don’t qualify for a Traditional IRA, taxable brokerage investing is a better choice.

In conclusion, both Traditional IRA and taxable brokerage investing have their pros and cons. Ultimately, it’s up to you to decide which investment vehicle is better suited for your long-term financial goals. Seeking advice from a financial advisor can be helpful in making this decision.