Many of us in the investing world get caught up with all the fancy named investment accounts. IRA, 401k, HSA, SEP, TSP, 403b, and more. But remember that those are all just special types of a regular ol’ brokerage account. Those tax-advantaged accounts give a tax break, but in exchange for some limitations (like how much you can put it, and when you’re allowed to access the money).

But don’t sleep on the regular/taxable brokerage account. MOST of my money is in a regular brokerage account. It’s offers the best of ALL WORLDS (except taxes). No income limits, no contribution limits, no limitations on when you can withdrawal, low fees, unlimited investment options, etc. The only downside is you don’t get the tax break offered by those tax-advantaged accounts. BUT GUESS WHAT, there’s a 0% tax option for brokerage accounts too! The IRS taxes long term capital gains at 0% when your taxable income is below $41,675 as a single person or $83,350 as a married couple.

THAT means if you retire early, you can actually live on your brokerage account and still enjoy a 0% federal tax rate up to those limits. Note that this doesn’t work if you have other income… i.e. if you have a job that pays $85K, then you’ll be over that limit and any additional capital gains will be taxed at 15%. ALSO, investments in a brokerage account generally kick off short term capital gains (like dividends). Those are always taxed as income at your income rate. AND you’re still gonna be paying sales tax, property tax, and others. So we haven’t TOTALLY beat the tax man, but it’s still a nice account to use for early retirement! 🙂

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.

-Jeremy