NFT: Taxable brokerage account question

a Roth IRA ?
if you want for retirement

First off ... congrats on excess cash. I think I remember that concept. Then I had kids.

Part A - Strictly depends on your risk tolerance. Certainly nothing wrong with a taxable brokerage account.
Part B - Just the portion held under 1 year.

... taxed short-term (ordinary income) on the recent purchase and long-term on the original.

In comment 13974845 giantfan2000 said:

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a Roth IRA ? if you want for retirement

+1

Can’t reaaly answer the first question. It depends on how well you would invest the money in the brokerage account. And how risk you’re willing to take with the money. Whatever you do, make sure you keep a Reserve in a safe account that you can easily sell without loss. Never now when emergencies pop up.

For the stock puchase, each is looked upon as a separate transaction tax-wise. You would only pay the short term rate for the shares you held for less than a year.

to max out a 529. there is no annual max I am aware of and the aggregate max I believe is the cost of 4 years of college or something to that effect.

I have three kids, I'd love to have a maxed out 529, but that's not going to happen.

There's a limit of $14k to avoid the gift tax, though there's an exception that allows you to give $70k in a single year but count it across 5 years.
Link - ( New Window )

In comment 13974917 giants#1 said:

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There's a limit of $14k to avoid the gift tax, though there's an exception that allows you to give $70k in a single year but count it across 5 years. Link - ( New Window )

I think you are misinterpreting that. 529's are post-tax vehicles (Federally). There is no annual limit (other than the aggregate). That excerpt is about maximizing tax benefits.

How could you have a $14,000 annual limit but $300,000 aggregate? Doesn't make sense. If you contribute since birth to 18 years old you could never reach the aggregate limit.

1. Keep emergency savings in a bank. Figure out what you spend monthly and keep about 6x that in a savings acct.

2. Anything over that, yes, get growth out of it. There are a plethora of options for growth.

3. If you have liquidity needs(meaning that you will need this money for something specific in the nearterm) then investing with a lot of risk probably doesn't make sense.

4. If eligible, a Roth IRA makes a lot of sense, but you are very limited with what you can put in annually. You can open a Roth and a Brokerage acct and max your Roth and then put the rest in a brokerage.

I'm not really following what you are saying. You are limited annually with what you can put in a 529 to get tax free growth(federal). However, a married couple can put in double per child(28k) or frontload the first 5 years at 140k.

In comment 13974923 pjcas18 said:

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In comment 13974917 giants#1 said: Quote: There's a limit of $14k to avoid the gift tax, though there's an exception that allows you to give $70k in a single year but count it across 5 years. Link - ( New Window ) I think you are misinterpreting that. 529's are post-tax vehicles (Federally). There is no annual limit (other than the aggregate). That excerpt is about maximizing tax benefits. How could you have a $14,000 annual limit but $300,000 aggregate? Doesn't make sense. If you contribute since birth to 18 years old you could never reach the aggregate limit.

Nope. If you put in $20k in one year (ignoring the $70k portion for now), then you have exceeded the $14k federal gift tax exemption. So you'll owe "gift taxes" on the $6k ($20k - $14k exemption) per the rates in the linked site.
Link - ( New Window )

In comment 13974936 giants#1 said:

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In comment 13974923 pjcas18 said: Quote: In comment 13974917 giants#1 said: Quote: There's a limit of $14k to avoid the gift tax, though there's an exception that allows you to give $70k in a single year but count it across 5 years. Link - ( New Window ) I think you are misinterpreting that. 529's are post-tax vehicles (Federally). There is no annual limit (other than the aggregate). That excerpt is about maximizing tax benefits. How could you have a $14,000 annual limit but $300,000 aggregate? Doesn't make sense. If you contribute since birth to 18 years old you could never reach the aggregate limit. Nope. If you put in $20k in one year (ignoring the $70k portion for now), then you have exceeded the $14k federal gift tax exemption. So you'll owe "gift taxes" on the $6k ($20k - $14k exemption) per the rates in the linked site. Link - ( New Window )

Thanks, my apologies.

So married couples can contribute $28,000 per year, so in addition to maxing out his 401(k) I'd be surprised if DC Gmen Fan has in fact maxed out a 529. And I assume that 28k is per kid (?)

for a married couple.

In comment 13974959 pjcas18 said:

Quote:

In comment 13974936 giants#1 said: Quote: In comment 13974923 pjcas18 said: Quote: In comment 13974917 giants#1 said: Quote: There's a limit of $14k to avoid the gift tax, though there's an exception that allows you to give $70k in a single year but count it across 5 years. Link - ( New Window ) I think you are misinterpreting that. 529's are post-tax vehicles (Federally). There is no annual limit (other than the aggregate). That excerpt is about maximizing tax benefits. How could you have a $14,000 annual limit but $300,000 aggregate? Doesn't make sense. If you contribute since birth to 18 years old you could never reach the aggregate limit. Nope. If you put in $20k in one year (ignoring the $70k portion for now), then you have exceeded the $14k federal gift tax exemption. So you'll owe "gift taxes" on the $6k ($20k - $14k exemption) per the rates in the linked site. Link - ( New Window ) Thanks, my apologies. So married couples can contribute $28,000 per year, so in addition to maxing out his 401(k) I'd be surprised if DC Gmen Fan has in fact maxed out a 529. And I assume that 28k is per kid (?)

Old information here....for 2018 the annual gift limit has been raised to $15,000 so that the numbers have changed......see article below


Link - ( New Window )

I mean maxed out what we want to contribute to it based on our plan. Sorry for the confusion.

In comment 13974936 giants#1 said:

Quote:

In comment 13974923 pjcas18 said: Quote: In comment 13974917 giants#1 said: Quote: There's a limit of $14k to avoid the gift tax, though there's an exception that allows you to give $70k in a single year but count it across 5 years. Link - ( New Window ) I think you are misinterpreting that. 529's are post-tax vehicles (Federally). There is no annual limit (other than the aggregate). That excerpt is about maximizing tax benefits. How could you have a $14,000 annual limit but $300,000 aggregate? Doesn't make sense. If you contribute since birth to 18 years old you could never reach the aggregate limit. Nope. If you put in $20k in one year (ignoring the $70k portion for now), then you have exceeded the $14k federal gift tax exemption. So you'll owe "gift taxes" on the $6k ($20k - $14k exemption) per the rates in the linked site. Link - ( New Window )

Can't you apply part, a very small part, of your lifetime estate tax exclusion (roughly $11,000.000) against the amount in excess of $15,000 and not pay gift tax?

I wonder if it makes sense to max out on a 401k now given the reduced tax rates and not have a Roth IRA. Just throwing this out for discussion.

The option would be either starting a Roth or converting a portion of the 401k to a Roth. I don’t know how old you are. I’m about to hit the age where I’m required to draw down part of my 401k and I don’t want to. One can actually have more money there than they need or should have especially with Roth as an option.

One other point. Brick and mortar banks pay almost nothing for savings. There are some online banks where you can get 1.75,maybe a little more. I think I would avoid CDs for now because rates are going up

In comment 13975133 Samiam said:

Quote:

I wonder if it makes sense to max out on a 401k now given the reduced tax rates and not have a Roth IRA. Just throwing this out for discussion. The option would be either starting a Roth or converting a portion of the 401k to a Roth. I don’t know how old you are. I’m about to hit the age where I’m required to draw down part of my 401k and I don’t want to. One can actually have more money there than they need or should have especially with Roth as an option. One other point. Brick and mortar banks pay almost nothing for savings. There are some online banks where you can get 1.75,maybe a little more. I think I would avoid CDs for now because rates are going up

Right now you can get about 1.9% on a 3 month T-Bill that's exempt from state taxes. CDs about 1.8%. I'm sure you can do it through a Schwab, Fidelity or similar account.

In comment 13975067 njm said:

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Can't you apply part, a very small part, of your lifetime estate tax exclusion (roughly $11,000.000) against the amount in excess of $15,000 and not pay gift tax?

Wouldn't surprise me, but I don't have that kind of money so I've never looked into it!

Like others have said, any amounts over the $15,000 taps into your lifetime exclusion. The lifetime exclusion is currently around $11,000,000 per person (it's portable between a married couple). So unless you have an extremely high net worth, you may not even pay the gift tax.

Here is a good article on the lifetime exclusion/gift tax - ( New Window )

I spoke with a college planner and he said 529's can hinder your child's ability to get reduced tuition. College's are more likely to force you to pay if they see the child already has money in his/her name. Punishes those who are trying to do the right thing.

In comment 13975133 Samiam said:

Quote:

I wonder if it makes sense to max out on a 401k now given the reduced tax rates and not have a Roth IRA. Just throwing this out for discussion. The option would be either starting a Roth or converting a portion of the 401k to a Roth. I don’t know how old you are. I’m about to hit the age where I’m required to draw down part of my 401k and I don’t want to. One can actually have more money there than they need or should have especially with Roth as an option. One other point. Brick and mortar banks pay almost nothing for savings. There are some online banks where you can get 1.75,maybe a little more. I think I would avoid CDs for now because rates are going up

One benefit of a Roth IRA is after five years (seasoned money), you can withdraw contributions without penalty (contributions, not gains). This gives you some flexibility. I know, I know, you shouldn't tap into retirement funds, but I'm just letting you know that this option is out there.

In comment 13975390 Knineteen said:

Quote:

I spoke with a college planner and he said 529's can hinder your child's ability to get reduced tuition. College's are more likely to force you to pay if they see the child already has money in his/her name. Punishes those who are trying to do the right thing.

Here's a good article on 529 plans and their impact on the FAFSA. I'm glad the article referenced 'CSS' schools. These are schools that require more financial information than the FAFSA. Thus, some assets that are not required to be disclosed on the FAFSA may have to be disclosed on the CSS. The kicker is, every CSS school may have a different set of requirements.
529 Article - ( New Window )

In comment 13975133 Samiam said:

Quote:

I wonder if it makes sense to max out on a 401k now given the reduced tax rates and not have a Roth IRA. Just throwing this out for discussion. The option would be either starting a Roth or converting a portion of the 401k to a Roth. I don’t know how old you are. I’m about to hit the age where I’m required to draw down part of my 401k and I don’t want to. One can actually have more money there than they need or should have especially with Roth as an option. One other point. Brick and mortar banks pay almost nothing for savings. There are some online banks where you can get 1.75,maybe a little more. I think I would avoid CDs for now because rates are going up

Low 40s.

Can't contribute to Roth any more due to income limits.