Non-Deductible IRA’s vs. Taxable Brokerage

There are several considerations when considering what types of investments to make. Below we’ll discuss two different types of investment accounts that are made with after-tax money…

​Some folks are looking for investment options after maxing out 401k contributions, or they may just want to have accounts that distribute in retirement without being taxed as ordinary income.
 
Here are some reasons why a Taxable Brokerage Account may be better than Non-Deductible IRA’s:

• Gains on Taxable Brokerage Accounts are subject to capital gains rates, rather than ordinary income rates, which are a huge difference
• Brokerage accounts are liquid, with no waiting period needed as far as not taking distributions until age 59.5
• They don’t require minimum distributions at age 72
• They have no contribution limits
• They receive a “step-up” in basis upon your passing…so your heirs would receive a huge tax break

However, Non-Deductible IRA’s allow tax deferred growth, rather than taxation of dividends along the way. But the tax is still due when you distribute, and at higher ordinary income rates.

Some folks choose to do a combination of both. Just be sure that if you do Non-Deductible IRA’s, you properly report on your taxes to avoid getting taxed improperly upon withdrawal. Form 8606 is a critical year-by-year component of this reporting until withdrawal, as it tracks basis which reduces taxable income by contribution amounts. It’s no fun to have this get “lost in translation” and end up being taxed upon distribution.
 
Contact us if you have questions as it pertains to your specific situation…we’re happy to help!