Written By: Stephen Smalenberger, EA
Your accounts like tools in a toolbox, each serving a different purpose, allow you to accomplish a variety of goals in the best way possible. When you think about your portfolio, you often immediately remember the underlying investment holdings like stocks, bonds, mutual funds, ETFs, etc. What about you? What comes to mind when the word “portfolio” is mentioned?
Often times what they don’t think about are the types of accounts that make up their entire portfolio, the grouping. How are your accounts registered? Are they qualified or non-qualified?
Thinking of your accounts like tools in a toolbox, each serving a different purpose, allows you to accomplish a variety of goals in the best way possible.
Some quick terminology to define:
- Qualified: Retirement account
- First is Tax-Deferred: The investment growth is not taxed when earned but rather delayed into the future when the money is withdrawn. The money deposited into this type of account is known as “pre-tax or before-tax” money.
- Second is Tax-Free: investment growth is not taxed. The money deposited into these is known as “post-tax or after-tax” money.
- Non-Qualified: Non-Retirement account
- Third we have Taxable: investment growth is taxed in the year earned.
The retirement-focused accounts allow for some great tax benefits either now or in the future. Each has its own positives/negatives, rules, benefits and limits. Not every type of account is right for everyone. Just like how every tool is not necessarily the right one for the job. Many may get the job done, but there are some made specifically for the task. Their design and purpose is to accomplish it efficiently.
Do you know what type of accounts make up your portfolio and do you know how they are registered?
Here’s a brief list of examples within each type of account grouping:
Defined Benefit Plan
Thrift Savings Plan
Over the coming weeks, I will be discussing our toolbox each in more detail and comparing the characteristics they provide.
Ready to take the next step?
Schedule a quick call with our financial advisors.
The 2021 tax season is officially behind us! Over the past few years there have been unusual factors making tax preparation and planning more challenging than ever.
Steve enjoys getting to know clients and hear their unique stories and the lessons learned which has brought them where they are today. One of the reasons he enjoys what he does is the ability to show the outcome that can be achieved with different choices. He also enjoys continually learning.