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Thursday, April 15, 2010

Investing/ Retirement Saving Part 3

Taxable accounts are the third type of account you can use to save for retirement. Taxable accounts are basically everything not mentioned in that two articles. Bonds, stock, saving accounts, all of it can be a taxable account.

Most often it is not recommended to save in a taxable account unless you are maxing out your other options or for non-retirement saving like an emergency fund, down payment for a house, things like that. However those are all goals that are short term which means you should be saving in savings account or CD account. When would you start putting money in bond or stocks/mutual funds in taxable accounts?

Never hold bond (except government bonds) in a taxable account, only stocks/mutual funds. Government bonds have tax savings all their own so have some of those outside your tax deferred or tax advantage account is fine but if you hold a mutual fund or stock for more than a year, taxes when you sell it are lower than any other type of income tax. For example, the max right now you can pay on a stock profit (if you have held it for a year) is 15% vs 30% or so. However corporate bonds do not get that discount are taxed just like everything else so but corporate bonds in the other two types of accounts and put mutual fund/stock in a taxable account.

To do this you can go to the same companies you used for your IRA, T Rowe Price, Vanguard, or Fidelity and they can help you set an account up. If you want to buy individual stocks, not mutual funds you can still do it there but there are better options but you don't want to start there yet.

So basically when you are earning enough to max out all the tax deferred and tax advantage accounts you have start dropping a little bit in taxable accounts. When you retire it will allow you to live better on less taxes and it also gives you another emergency fund.

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