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Saving More for Retirement - Trad IRA vs Normal Brokerage Account
Posted on 5/9/24 at 12:32 pm
Posted on 5/9/24 at 12:32 pm
I'm trying to understand what would someone's logic be for opening a Traditional IRA versus just using a plain ole brokerage account for long term investing + saving for retirement in my situation. I'll preface with some pertinent information:
- Primary income is from W2 / salaried employee
- 401K through my company that I max out
- I have a Roth IRA but I make too much money (W2) to contribute going forward; AKA I'm over the contribution threshold
- I have a normal brokerage account with a modest amount of money ($50K) that I 'play' with (ex. usually these are L/T investments in individual companies I target, but sometimes I use it to take fliers (SLI))
- HYS account with about 4-5 months of living expenses
- Due to a long term and very expensive medication I am on, the HSA route will not work in my situation
So, if I want to save more for retirement over the top of my 401K and Roth IRA, what is the advantage for opening a personal / Traditional IRA versus just using my brokerage account for that? With a Traditional IRA, I'm still contributing after tax dollars, right? And then I'll get taxed again when I withdraw, whether it be voluntary or mandatory.
I understand some may say that Trad IRA contributions can be tax deductible. But since I have an employer-sponsored retirement plan, the tax-deductible portion of my IRA contribution is most likely going to be limited.
Any help is greatly appreciated!
TL/DR - what is the advantage for contributing to a Trad IRA instead of just using a normal brokerage account in order to save more for retirement.
- Primary income is from W2 / salaried employee
- 401K through my company that I max out
- I have a Roth IRA but I make too much money (W2) to contribute going forward; AKA I'm over the contribution threshold
- I have a normal brokerage account with a modest amount of money ($50K) that I 'play' with (ex. usually these are L/T investments in individual companies I target, but sometimes I use it to take fliers (SLI))
- HYS account with about 4-5 months of living expenses
- Due to a long term and very expensive medication I am on, the HSA route will not work in my situation
So, if I want to save more for retirement over the top of my 401K and Roth IRA, what is the advantage for opening a personal / Traditional IRA versus just using my brokerage account for that? With a Traditional IRA, I'm still contributing after tax dollars, right? And then I'll get taxed again when I withdraw, whether it be voluntary or mandatory.
I understand some may say that Trad IRA contributions can be tax deductible. But since I have an employer-sponsored retirement plan, the tax-deductible portion of my IRA contribution is most likely going to be limited.
Any help is greatly appreciated!
TL/DR - what is the advantage for contributing to a Trad IRA instead of just using a normal brokerage account in order to save more for retirement.
This post was edited on 5/9/24 at 12:33 pm
Posted on 5/9/24 at 12:34 pm to skewbs
Traditional ira for roth conversion. Brokerage after that maxes
Posted on 5/9/24 at 1:11 pm to skewbs
You wouldn't pay any taxes until retirement distributions on your IRA gains if you buy/sell. You could be hit with capital gains taxes on a brokerage account at any time if you are buying/selling, right?
This post was edited on 5/9/24 at 1:12 pm
Posted on 5/9/24 at 1:30 pm to skewbs
I agree with your logic. The limits on IRA contributions seriously hamstring your ability to build a sizeable nest egg.
I am over the Roth threshold as well, but I make a max contribution every January to a Traditional then do a backdoor Roth conversion.
I also have a brokerage account for my "savings." It is about 2.5 times bigger than my IRA, but I look at the combination of the 2 as my retirement savings.
I am over the Roth threshold as well, but I make a max contribution every January to a Traditional then do a backdoor Roth conversion.
I also have a brokerage account for my "savings." It is about 2.5 times bigger than my IRA, but I look at the combination of the 2 as my retirement savings.
Posted on 5/9/24 at 2:33 pm to skewbs
I think you're correct. I also did the Roth then moved to traditional IRA before realizing I could do more with brokerage. I'm simply buying and holding so not subject to gains
Posted on 5/9/24 at 9:59 pm to skewbs
A brokerage account would be available to you penalty-free if you decide to retire before 59 years old. Sort of like a bridge account until you can safely access your IRA’s.
Posted on 5/9/24 at 11:33 pm to skewbs
quote:
ue to a long term and very expensive medication I am on, the HSA route will not work in my situation
I don’t understand why medical bills would make an HSA unattractive. You should pay medical bills out of pocket and let your HSA grow tax free. Maybe you mean you have a lower deductible plan and can’t qualify for HSA?
Should also do backdoor Roth contributions using the traditional IRA.
Then do a non-qualified brokerage. Both of the other two are top priorities though. Basically no brainer if I’m understanding your situation.
This post was edited on 5/10/24 at 6:29 am
Posted on 5/10/24 at 8:42 am to skewbs
How long do you have before you plan to retire? Are your 401k contributions traditional or Roth?
If it’s still a while, backdoor roth may be the way to go.
Also, depending on how your 401k is set up, your plan may allow you to make after tax contributions and roll those into a Roth IRA (mega backdoor). You just need to stay under the total employee + employer annual contribution limit of $69,000.
Also, I am on an expensive long term medication with a HDHP and haven’t had to pay a dime for it due to the manufacturer rebate. You might have already, but it’s worth looking into.
It’s hard to say what’s best for you without knowing what age you plan to retire and how long you have left to save.
I am by no means a financial expert. But these are some things you can talk to someone more knowledgeable about.
If it’s still a while, backdoor roth may be the way to go.
Also, depending on how your 401k is set up, your plan may allow you to make after tax contributions and roll those into a Roth IRA (mega backdoor). You just need to stay under the total employee + employer annual contribution limit of $69,000.
Also, I am on an expensive long term medication with a HDHP and haven’t had to pay a dime for it due to the manufacturer rebate. You might have already, but it’s worth looking into.
It’s hard to say what’s best for you without knowing what age you plan to retire and how long you have left to save.
I am by no means a financial expert. But these are some things you can talk to someone more knowledgeable about.
This post was edited on 5/10/24 at 8:45 am
Posted on 5/10/24 at 11:38 am to skewbs
I think in your situation the brokerage makes the most sense …I just like the idea of the flexibility it brings.
Also as some posters pointed out , do yourself a huge favor and at least check to see if your company allows for back door Roth IRA.
That’s the winning ticket is your fortune enough to have it .
My company offers it and I am socking away close $30k into per year .
Also as some posters pointed out , do yourself a huge favor and at least check to see if your company allows for back door Roth IRA.
That’s the winning ticket is your fortune enough to have it .
My company offers it and I am socking away close $30k into per year .
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