There are a lot of different investment options out there like an HSA, a 401k,
and IRA, or Roth IRA, and a brokerage account.
Deciding which one to choose can be overwhelming.
But in today's video, we are going to focus in on the brokerage account,
you are going to learn what a brokerage account is and
the benefits of using a brokerage account.
I am Tiffany Thomas with wealthytiffany.com and I achieved
financial freedom at age 38, and became a millionaire at age 40.
So if you are looking to become financially free at a young age
as well, hit that like button and hit the subscribe button
and we are going to dive right in.
All right, what is a brokerage account? A brokerage account allows you to
buy and sell stocks, bonds, exchange-traded funds,
which are ETFs, and even mutual funds.
Brokerage accounts are also called taxable investment accounts to
differentiate them from tax-advantaged retirement accounts,
like individual retirement accounts and 401ks.
Essentially a brokerage account allows you to invest in the stock market
and a taxable account. So it is not considered a formal,
retirement account. But of course you can use it in your retirement years.
You can set up a brokerage account online with a number of different brokers.
I personally like to use Vanguard and I just started using IBKR Interactive Brokers,
but you can choose one of those. Get your account set up
and then deposit cash into that account from your checking or savings account.
And then you can purchase investments in the stock market,
like an ETF, or Index Fund,
or even individual stocks or bonds.
Once you've purchased your investments, then the brokerage that you're using acts
as the custodian for your investments.
Since there are so many different brokers out there,
you want to pick one that works for you.
Some of them are automated brokers where you deposit your money
and they will automatically invest it for you.
Others you choose the investments that you want
to be making and actually make those investments,
make those purchases. And then some of them will have a minimum requirement
you have to keep in your brokerage account and some of them don't,
some of them charge different fees. So when you are looking to set up a
brokerage account, make sure it has the things that you need or want.
Now that we understand a little bit about what a brokerage account is.
Let's talk about the benefits of using a brokerage account.
Benefit number one is that you can invest
as much as you want to inside of your brokerage account.
There is no cap on how much you can put in there
unlike with retirement accounts like a Roth IRA or a traditional IRA.
They limit that at $6,000 per year and even with your 401 k,
that is also limited to $19,500 per year.
And if you know the hack of investing in an HSA account,
a health savings account the maximum for that is $3,600.
So having no limit on how much you can put in
your investment account is really amazing because all of these other
accounts have a certain cap that you can put in the account.
So if you are a high income earner,
a brokerage account is going to work great
for you because you can invest as much as you want to.
And if you are wondering, is your money safe in a brokerage account?
The Securities Investor Protection Corporation,
the SIPC protects 500,000 dollars per customer.
If you have 500,000 invested in your brokerage account,
then you are covered by the SIPC.
And if you're thinking, oh, I want more than 500,000.
That's no problem. You can either continue to invest in that same brokerage account,
just realize that you will not be protected by the SIPC.
Or you can set up another brokerage account at a different firm.
And then invest in that account and build that one up to 500,000 dollars.
The second benefit of investing in a brokerage account is that
you can withdraw your money whenever you want to without a penalty.
When you are setting up retirement accounts like a Roth IRA,
there is going to be a penalty, a 10% penalty
if you withdraw that money before age 59 and a half.
So if you are part of the FIRE Community, Financial Independence
Retire Early, then you are looking to retire early before age
59 and a half, so you'll want to have access to your money and a brokerage account
provides that because you can withdraw your money whenever you want to,
it doesn't matter how old, or how young you are.
I personally have taken advantage of this with my brokerage account.
I wanted to purchase my fourth property a few years ago,
and I decided to use some of my money from my brokerage account,
to put toward my down payment, on my real estate property.
And I just withdrew that money
and it made it really nice to have access to my money before retirement age,
because I wanted to purchase this property
and I was able to do that because I had invested in a brokerage account.
And just as a side note, if you are investing in a Roth IRA,
you can withdraw your contributions before age 59 and a half.
If you want more details about a Roth IRA.
I do have a video for you. I will leave a link above and below in the description.
You can check that out later on. But with a brokerage account,
you can withdraw any amount anytime you want to.
It gives you a lot of flexibility.
And let's talk about benefit number three because if you are thinking,
well, I don't really want to withdraw my money early.
That's okay. With a brokerage account you can leave all of your money in there
as long as you want to.
And then you can leave that account to an heir, you don't have to
withdraw that money at a certain age.
Unlike with a traditional IRA, you have to start withdrawing your money at age 72.
With a brokerage account you can just leave
your money in there and keep depositing money
and watching that grow over time and you never have to take it out
if you don't really want to. The fourth benefit of a brokerage
account is that there is no income requirements
or income limits. When you are investing in a Roth IRA, for example,
there is a requirement that you cannot make over 140,000 a year if you are single.
So if you are a high income earner,
then you can still invest inside of a brokerage account without any problem.
And if you were thinking, well, I don't really have that much taxable
income. Maybe you are a real estate investor
like I am and you keep your taxable income pretty low.
It doesn't matter with the brokerage account you can still deposit money
that isn't taxable income, unlike with a Roth IRA.
If you want to deposit money into a Roth IRA, you have to show that you
had a taxable income that year for the amount you are investing.
For example, if you wanted to put three thousand dollars into a Roth IRA,
you would have to make sure you show three thousand dollars of taxable income
for that year or you can not contribute that 3,000 to a Roth IRA.
You would only be able to do the taxable amount that’s showing on your taxes.
So that's just another great flexibility with investing inside
of a brokerage account. You don't have to worry about how much you are making
or how little you are making.
If this is all making sense
so far, comment below ‘making sense’ and let's move to benefit number five.
And this one is pretty amazing
because I'm sure you've heard that you need to pay taxes
when you are withdrawing money from a brokerage accounts, which is true.
But if you hold your investments inside of your brokerage account for
at least one year, then you will pay a long-term capital gains tax rate.
And this could be 0%. If you are single and you made up to
forty thousand four hundred dollars, then you would be in the zero percent tax rate.
And you can make even a little bit
more because if you are taking the standard deduction on your taxes,
which is 12,500, then you could make up to fifty two thousand nine hundred
and fifty dollars and still pay a zero percent federal income tax rate.
But let's say you made over that 52,000.
That's still going to be just fine
because there are only two rates in the long-term capital gains tax rates.
There's the zero percent, and then 15%.
So 15% is still most likely going to be lower than your normal tax rate,
which would be considered a short-term tax rate.
If you held your investments for less than a year,
then you would pay your ordinary income tax
rate. And the ordinary income tax rate for over 40,000 is 22%,
then it increases to 24% and then up to 32%.
So by making investments in your brokerage account and then cashing
those out after a year, you are still going to pay less in taxes than you would
if you were not investing your money. If you are worried about paying taxes
when you are investing inside of a brokerage account.
So you decided to keep your money in a savings account.
That's not even going to keep up with inflation.
And I've just showed you how it's possible to pay zero percent
when you were taking that money out. So you definitely want to be investing
as much of your money as soon
as possible and you can do that inside of a brokerage account,
and not have to worry so much about having a high tax bill.
Benefit number six is pretty awesome.
This is what I've just done with the profit that I made by selling my property.
So there are two types of brokerage accounts.
One is a cash account and this is the one where you deposit cash into your
brokerage account and then you purchase stocks, or bonds, or funds with that cash.
And then you let that investment grow over time.
The second one is called a margin account,
a margin brokerage account. And this one means that you can buy on margin.
That means you don't have to have that full amount of cash to buy an
investment inside of your brokerage account.
Or you can also borrow against what you do have
invested in your brokerage account and cash that money out,
take out a margin loan and then do whatever you want with that cash.
You just want to be careful on how you do this
because there are certain requirements.
And if you want more info about that, you can check out my other video
I created. I will leave a link above and below in the description.
But this is just another great option of a brokerage account.
You can add even more flexibility
and have access to cash when you are borrowing against your own investments.
And that way you are not selling your investments to get this cash.
You can keep your money invested and let it continue to grow over time.
Alright, benefit number 7 is you can invest in whatever you would
like to in the stock market and a brokerage account.
Which is pretty awesome when you are considering the options
that you get inside of a 401k. Your company will
provide just a certain list of different options that you are able to invest in.
And it could not include something that you want to be investing in.
For example, they usually don't include investing in individual stocks
and some of them won't even have a total stock market fund,
which I personally like to invest in.
So you can be really limited when you are investing in a 401k.
But with a brokerage account you can invest in whatever fund you would like
to or whatever individual stock
you would like to. If you prefer a Vanguard fund,
no problem. Or a Fidelity fund,
no problem. If you want to invest in Tesla,
no problem, or Amazon, or some new stock that just went public.
You have the option of choosing whatever you
would like to invest in inside of your brokerage account.
Hopefully, after hearing these benefits, you are not afraid to
invest your money inside of brokerage accounts, because we
definitely want as much of our money working for us as possible.
And a brokerage account does that for us. It provides all of that flexibility to invest
in whatever we would like to, invest as much as we would like,
withdraw whenever we would like. So don't get caught up in trying to decide
which investment vehicle is going to be the best for you.
Just pick one and move forward
or if you feel like you aren't able to invest all of the money that you want to,
definitely set up a brokerage account and you can invest as much
as you want to. Comment below
and tell me if you already have a brokerage account setup
or if you were going to get one set up.
And now that we've talked about an option on where you can invest your money.
If you are just looking to manage your money better,
I like using Personal Capital. It is a free app.
You can hook all of your financial
accounts and see your full financial picture in one place very quickly.
If you're interested in that, I will leave my referral link below.
You can click on that and get a free twenty dollar Amazon gift card,
when you hook one of your retirement accounts to Personal Capital.
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Thanks so much for watching. I'll see you in the next video.