Why I Invest in High Yield Dividend Stocks in a TAXABLE Account
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- čas přidán 1. 06. 2024
- Last week I made a video in which I talked about how my favorite monthly dividend-paying company is actually the worst-performing stock in my portfolio. And although I had mentioned this in a previous video, a number of people who aren’t consistent viewers of my channel, I think were surprised by this revelation I made. So this week I figured I’d keep the revelations going by being upfront about where I do my dividend investing. If you weren’t aware at this point, I have my six-figure high-yielding dividend portfolio inside a taxable account, not a retirement account.
So in this video, I wanna discuss why I’m doing this and also go over the pros and cons of doing this as opposed to doing it in a retirement account. Now of course, when it comes to deciding whether you’ll invest in a retirement or a non-retirement account, it’s all a matter of personal choice. There are good and bad consequences to investing in dividend holdings in each type of brokerage account. I personally choose to invest in a taxable account, and I willingly bear the downsides of doing that. I’d probably say the majority of my viewers though don’t actually do this. They usually prioritize dividend investing inside a retirement account, like a Roth IRA. But I’ve been building up my main six-figure, high yielding dividend portfolio entirely in a taxable account.
/ dividendbull
#dividendinvesting #dividends #dividendstocks
Because of dividends, I first began investing in stocks. It's important, in my opinion, to be able to live off of dividends without selling if you invest and make other income in addition to payouts. It suggests that you may pass that down to your kids and give them a leg up in life. Over the years, I've invested over $600k in dividend stocks; I continue to buy more today and will keep doing so until the price drops even further.
Hearing from an experienced investor who has survived adversity and prevailed is always motivating. It may be frightening when your portfolio goes from green to red, but if you have invested in strong firms, you should maintain growing them and stick to your goal.
We can't ignore the potential impact on portfolios. Bonds are often considered a safe haven, and if they crumble, investors like me might scramble. I’ve been investing for 11 yrs and my $1m portfolio has never been this depleted, how i do hedge this?
The professionals presently control the market since they not only have the essential business strategy but also have access to inside information that the general public is not aware of.
You have a very valid point, I started investing on my own and for a long time, the market was really ripping me off. I decided to hire a CFA, even though I was skeptical at first, and I beat the market by more than 9%. I thought it was a fluke until it happened two years in a row, and so I’ve been sticking to investing via an analyst.
@@KelvinWallace Your fiduciary seems highly competent. May I ask if you are still working with the same fiduciary, and if so, could you share how I can contact them?
Finding financial advisors like Aileen Gertrude Tippy who can assist you shape your portfolio would be a very creative option. There will be difficult times ahead, and prudent personal money management will be essential to navigating them.
@@KelvinWallace Thank you for this tip. It was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her résumé.
I used this strategy to retire early at 55 with all my monthly expenses/taxes paid from my taxable brokerage. My IRA/401K has Drip ON for later consumption in life! Paying taxes are just part of life. Leaving the job I was stressed out at was priceless!
the yield on bonds have decreased especially on the long end (30 and 10 Y) indicating that the demand is still there even if the supply remains huge showing a preference for safety. I'm still at a crossroad regarding whether or not to liquidate my $38k .
I agree with you. I started out with investing on my own, but I lost a lot of money. I was able to pull out about $200k after the 2020 crash. I invested the money using an analyst, and in seven months, I raked in almost $673,000 .
Aileen Gertrude Tippy'' is her name. She is regarded as a genius in her area and works for Empower Financial Services. She’s quite known in her field, look-her up.
Your transparency and honest explanations for why you focus on dividends and use a taxable account is what puts you leagues ahead of other content creators in my opinion. So many people like to bash dividends but never show their own gains since its all dependent on their share price which fluctuates, great job being honest with your audience and yourself.
💯
Thanks for another perspective. I too have had a taxable brokerage account for years.
I may be paying taxes, but that is because I am making money. Don't lose sight of the goal!
I do both. I have qualified dividends/dividend growth in taxable, and my non-qualified/higher yield in my ROTH.
I did all three myself. Qualified dividends in a taxable account, non qualified in a roth and a company 401k.
Aren't all dividends qualified once you own them long enough?
@@SomeUserNameBlahBlah Negative. Certain stocks have qualified dividends which are taxed at the long term capital gains rate. Other stocks, notably REITs and (I think) BDCs, have their dividends taxed as regular income.
@@tylermceachern3085Any stock or ETF that isn't a REIT, BDC or MLP is a qualified dividend once you own 61 days before ex-dividend date?
I've made more paying taxes "I resent how the money is spent" and find it funny that people will sometimes limit themselves just to focus on tax avoidance.
Hi, you are right, should be tax efficient not not paying tax. Investing in the right way that is right for you.
In the UK we are allowed to put @20k in an ISA each tax year and for most that is more than enough. So each year you add another 20k and profits are tax free as well and stay in the ISA. For most this would be the best form of saving, keep adding and let it compound all tax free. Taking the dividend or principal is all tax free.
Take care M.
Your investment strat is so much different than any other Tubers recommendations, I always look forward to your uploads and hearing your thoughts on things, this strat is the ultimate have your cake and eat it too! AND you can have market beating results this way as well
Without a doubt the top YT channel on investments I subscribe to. 100% agree with all of this info on strategic investing.
That one hit it right on the head! In the next year I should be able to get my taxable going and was going to do the same! I have a taxable for each kid so that they can have access to the funds whenever, but hope that they don't touch it for a long time!
I share the same view. You don't know how long you are going to live, if you even reach retirement or what critical needs you may have. So enjoying this cashflow today at the expense of some taxes makes all the sense.
Buying stocks may appear straightforward, but selecting the proper stock without a tested plan can be difficult. My biggest obstacle, which has been preventing me from growing my portfolio for some time, is the absence of a well-defined entry and exit strategy. I would be very grateful for any guidance on this."
"Investing diversified is one of the safest strategies I've found. It is possible to lessen the effects of a market collapse by diversifying your investments among bonds, real estate, and foreign equities, among other asset classes. It's crucial to look for professional advice."
Really enjoy your videos. I use all the different types of accounts myself. In the Roth I mainly use that for things that are taxed as ordinary income. Once I hit the limit there I switch to the taxable brokerage account where I have municipal ETFs and qualified dividend stocks. Also have an old 401k that I rolled into an IRA account. I plan on retiring in the next 10 months.
You’re one of my favorite channels, don’t let the noise get to you. True investors know why you do what you do. No need to explain! Keep up the great content!
Great video!! Loving the content lately
Thanks for making this video, I really appreciate it!
Great video. Your reasons make perfect sense.
I repeat thank you for sharing your knowledge!
I personally think investors should pay attention to under-the-radar stocks, especially considering the current stock market volatility. 35% of my $270,000 portfolio is made up of sinking stocks that were once respected, and I have no idea where to go from here.
Diversifying investments is, in my opinion, the safest option. By spreading their assets across asset types like bonds, real estate, and foreign equities, they can lessen the impact of a market collapse. Getting professional assistance is crucial.
Lots of individuals undervalue the function of advisors until they are burned by their own emotions. I remember a couple of summers ago, following my lengthy divorce, I needed a good boost to assist my business stay alive, so I looked for licenced advisors and found someone with the highest qualifications. Despite inflation, she has helped me increase my reserve from $275k to $850k.
i'm sincerely committed to securing a stable financial future and excited about taking part .
Maria Leticia Monroe is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..
I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get. I just scheduled a caII.
100% agree. Access to your money is the whole point dividend INCOME.
You are spot on; thanks for your honesty and clarity
My dividend portfolio is in a taxable. It's been great for me. I've taken money out for bills after moving, but was able to put it right back in when I came up on some more quick income before getting another job.
Excellent video Alan. Totally agree. Have taxable brokerage. Roth IRA. Traditional IRA - rollovers from former 401k’s. Keep up the great work.
You might want to look into the SEPP rule. The rule allows you to access tax deferred retirement account money prior to age 59.5.
Roth is better than you describe. The IRS categorizes withdrawals by priority, with any dollar coming out first counted against contributions, then when those are exhausted against conversions, and last against growth. This means that you may be withdrawing "dividend income," but as long as you have not taken out more than you contributed they will be counted as (subtracted from) the contributed amount.
I realized in 2008 that I needed more money in my taxable account so I built that up over the years. It's never bad to have that flexibility. However now that I can access the IRA I am starting to shift the IRA to more higher dividend payers as I make changes in the taxable account. (I.e. gains harvesting to fill a tax bracket or offset loss harvesting.)
Hey DBull, great video covering a very important topic for dividend investors. I expect over 12k in Fed taxes for Div proceeds. Iam using my job income to pay it. It's definitely something dividend investors need to prepare for outside of Roth. Great suggestion with quarterly payments and DRIP switching.
I’m contributing 25% of my income to investments. Of that total amount invested, 60% into my Roth ira, 20% into my 401k and 20% into taxable account. In the tax acct, focused on growth and dividends for mid term time horizon. 📈
That is 100%.... What do you live on if you invest your total income?
@@hopelessdecoy good point, I should have clarified that, of my total investments, that’s what I’m contributing to each account. Will update comment accordingly. Thanks.
Many good points here, one thing to look at if your worried about federal taxes is municipal bonds or funds, some get pretty decent yields, there are some funds that give you tax exemptions from state taxes also. Thanks again for another great video.
The 59 1/2 rule is the major reason I choose a taxable account versus an IRA. Would rather not wait that long.
Great points. Being of age, it is the opposite for me. My 401K has moved to an IRA. My qualified positions, MLPs and growth investments go in my taxable accounts. The rest of my dividends gazinta my IRAs and ROTHs. As you said, that works for me. Thanks for doing what you do.
I love being able to use my dividends for buying stuff NOW!
I like the access to my funds and I like qualified dividends whenever possible. Sometimes you're over 50 and do not qualify for a Roth.
Rule of 55 for me and retired Sept 2023. 72t rule for my wife’s 401k access. Roth withdraws are ok as well as long as your account is over 5 years old and you take out less than you put in before 59 1/2.
Fantastic video!
I just started a youtube channel about dividends, so your channel is a great inspiration for me! :)
I would also add that there is a big difference between qualified and non-qualified dividends when it comes to taxes. It is important to understand the difference when constructing your portfolio.
For me the taxable account is just for money I have left over after maxing the retirement accounts and I haven't really built up much in it. Right now I've been putting my extra savings into 4 week Tbills but I guess I might have to change my strategy when interest rates come back down below 4% and focus on the taxable account again
Appreciate this video. Most people in my investment style lump most of their money into a Roth IRA, which is smart IMO. I haven't done this, however, and this video definitely highlights some of the reasons why.
I agree with your assessment. I am in my late 40's and have made up my mind to live mostly on dividends. I might get a part time job. But I like your suggestion to pay quarterly payments to the IRS. I wasn't sure that was an option. That seems to be more a psychological strategy to avoid feeling like you have a big tax bill come April 15th.
I love your channel and all your information and wisdom. And I understand your reasoning for not investing in a ROTH IRA, but since these accounts place a limit on the amount you can invest in it each year, and because of the huge tax advantage they offer once you reach retirement age, it may still make a lot of sense for young investors to open a ROTH and put some of their investment money into it each year even if not up to the mandated limit. I sure wish I had done this many years ago.
You can have everything if you want it. I have a ROTH that I am funding, I have a 401k and a 457B at work. I can easily use those accounts to pay less in taxes. Win win all around.
Why not do both? Max out non taxable, then contribute rest to taxable. Best of both worlds. 🤷🏾♂️
Thank you.
I'm a mostly dividend investor and don't want to pay so much in tax especially because my income is already taxed and then getting taxed on money that has already been taxed just seems unfair. I enjoy watching your content to hear your take on the different companies you talk about and I've learnt a lot from watching you, also in the UK we have an ISA which is similar to your Roth IRA but the annual contribution is 20,000 and everything in it is tax free and you can withdraw at anytime
I love dividend stocks in my taxable account, but I love Limited Partner companies MORE because they usually pay a high DISTRIBUTION, which is usually not taxed as it is a RETURN OF CAPITAL. Yes, they issue a K-1, but my CPA charges $25 per company form per year. Well worth it.
Thanks!
Run that bag up 💰
Couple of times you made the statement that retirement accounts are 'tax free'. Not true. They are tax deferred. Tax must be paid when distributions are taken. Of course the tax bracket that applies to said distributions might be lower than what they would have been if the income was taxed earlier at regular tax rates. I personally think your reasons for using a taxable account are accurate and this is why I choose to do so also, primarily the higher contribution amounts and the access to all of it at any time.
Roth gains are tax free. Might be what hes referring to
@@MrconsistentFGC But you have to pay taxes on income going into it.
big brother always needs his share@@wewhoareabouttodiesaluteyo9303
@@wewhoareabouttodiesaluteyo9303 big brother always wants his cut
I kinda know what my tax burden will typically be by the end of the year. So I simply take than number divide by 52 and put about that much each week aside in my savings account. The rest I can continue to invest or spend as I wish.
- use cashflow money to live!!! (rental)
- Retire money too late ROTH (but tax free until 59.5)
- can do early withdrawal (taxable account)
- taxes more (if dividends)ok
Age 25
ROTH (tax free) + dividend strategy
Age 20 - 25
TAXABLE (also free to move but don’t have to) + dividend reinvest or use
BTW there are ways to access your retirement accounts before 59.5 so if some of your listeners have most of thier money in retirement accounts they have options to get out before 59.5...here's a couple of ways...
Rule of 55
72T
NUA treatment on company stock in 401k
Backdoor Roth conversion ladder
I liked, been subscribed for a LONG time and today I have a question: dude, how old are you in 2024? I’m 52. No real reason for asking beyond me just being nosey.
My dividend stock portfolio is also in a taxable account for similar reasons. I have 0 regrets.
Thank you
We actually set up several: 401k and Roth Ira for my wife and I plus a taxable account of half the value of our Ira for early access. We set up a Roth for my son focused on div growth and a taxable of half that value in the hopes he can retire early. It’s a lot to juggle 🥵
Call me optimistic, but... I hold most of my dividend investments in a taxable account because I want my dividends to fund mortgage payments that are otherwise beyond the reach (in my opinion) of my W-2 income. Not sure how the bank will react to my plan. 😂
I also hold many of the same investments within my HSA, which does earn tax-free.
Basically a snowball. Once you pay off your mortgage payments, that is going to just be surplus income. lol
@@wewhoareabouttodiesaluteyo9303 I'm already too old to really be concerned about paying a property off. The real stretch goal is to leverage all of my illiquid assets as debt while keeping my liquid assets as close to cash (and growing) as possible. If I die while the bank holds a note for 100% of the value of a property, but I always had cash to live comfortably and take care of myself until the end, then I win. At any point in the middle, me and my cash can be anywhere in the world and the bank/county/whoever can have the property back. I don't think that would happen, but... 😂
My Dad has done basically the opposite of this. He outright owns some land that is worth money, but no one has bothered to buy it, so all he really has is a property tax bill, an insurance liability and no real retirement while about to turn 78 years old. Hard pass.
I did this before I even heard it was a "bad idea". I keep a employee match 401k, a small Roth IRA, and a small taxable account. I keep my Roth IRA on automated reinvest index funds while I manage my taxable account. I choose to collect my dividends and use them to purchase new stocks or reinvest whenever I think the safety factor is good.
Interesting strategy. Do you actually not put anything into tax advantaged accounts??? Wouldnt it make sense to have at least some long term investments in one of these accounts to reap the benefits? Assuming you live to at least 59.5, youd have access to divvys that compounded tax free over decades.
In Canada you can withdraw money from tax sheltered accounts at any time, you will just pay regular taxes on those withdrawals and will not be able to put money back on some accounts.
One thing he missed is IRA’s have a little more protection to them as well for things like garnishments and lawsuits. But I have both taxable and non taxable as well as deferred they call it the three bucket plan.
These are basically my thoughts as well.
Same here.
The whole point of dividend investing is to retire early. With Superannuations (our own Roth IRAs and 401Ks) in Australia we cannot touch or withdraw from those accounts until the age of 60. I use CMC Markets as the brokerage account and receive dividends through there. This is something many CZcamsrs focused on growth stocks like IVVs, IOOs, VAS, VGS etc like to bash around. I invest in both growth and dividend cash flow (your ASX VHYs, RDVs, MXT MOT PCI, WAM, etc.).
That’s my goal, aggressive (relative to my pay) contribute to a taxable account, give or take 10 years start using the dividends to help sustain a non poverty lifestyle and possibly move to part time to keep my insurance till my pension and (if it’s still around) social security to carry me into my later years…if I’m lucky enough to live that long
if you have a big portfolio, you should be able to withdraw money from your ROTH.. no penalty for contributions withdrawal.. problem is not many will have 100K plus in Roth contribution to do that.
My problem is the limit amount i can put in my retirement accounts, leave you in no choice situation,. That's why i only keep my highest dividend payers in them to drip, the rest is allocated in cash accounts
I had no idea you can file your taxes quarterly. I figured you might have mentioned something like using margin to help grow your account faster.
i'm 40 with about 200k in a taxable brokerage account with a focus on dividends. i definitely do pay a lot in taxes, especially because a good chunk of my income is in the 24% bracket, but i feel the same way as you- i want full access to my money and am worried about changes in retirement rules before i'm close to 60. i also may want to use some of this money for real estate, or who knows, maybe to start a business or something. if i stop working i'll immediately pay less in taxes due to only receiving dividends, so i just don't really care to worry that much about taxes. i'd rather just keep growing the dividend and enjoying the increased freedom that comes with it, without worrying about what politicians are going to do in the near future.
I do the same because I plan to early retire way before 59.5 so my IRA/Roth money is considered locked and untouchable until then (I could withdraw earlier but it would be stupid to). Even if my high dividends are ordinary income, the first $13.8K (current law standard deduction) won't get taxed anyways and the next $11K or something is only taxed at 10%. But lots of dividends insures I won't need to sell shares to buy food so I won't have to be as worried about whether equities are tanking 25% as long as the dividends keep coming.
good video 13 k dividend porfolio here trying to contribute fast i can
I was looking through the semiconductor industry, and noticed a lot of volatility... especially with MMAT. Is it the lack of AI tech or something else? They seem pretty entrenched in a needed market, but their stock price is so low, and trending lower, I am afraid to invest anything with them. How do I begin researching that stock? any help would be appreciated.
I've always scratched my head about FIRE enthusiasts focusing so much on retirement accounts. yes use them, get your 401k match, but if your focus is retiring early then why would you use an account you cant access without penalties?
I have a good start in retirement accounts. I’m not focusing on Roth IRA, Input mine in a taxable brokerage, cause I want to retire earlier than 59. So that’s what I’m doing now, plus I use done to invest for my kids.
IRA contributions assuming they're from wages are still Social Security and Medicare taxed. That's 7% that are still taxed. You might want to say tax deferred not tax free. The real question is what's the tax pain point on your dividends. Maybe there's people out there that can't stand to pay $1 in taxes, I would say they're the outliers. I would rather have my money accessible without worrying about penalties.
When your didvidends become equal to or more then your paycheck, then start looking at a roth and other investments
The main pro of using a non tax advantage account for your investing is the fact that you can invest an unlimited amount of money in it each year, whereas a retirement account with have a hard cap of some sort.
You can always buy a rental place and take the depreciation to offset your taxable income.
I use the strategy of not reinvesting for a few months. January through March/April, and then that money is available for the tax check. After that, back to reinvesting.
Can you do a video on PFFA? I asked about it on discord in your video ideas section
I don't make enough to juggle my money through the loopholes to make it make a large change in margin, I doubt ill ever have that level of FU money, but I hope to have some FI money, where I can choose to explore alternative employment or , in the best case scenario, cover the majority of my utility bills.
I have a taxable account where i make approx 200K a year in dividends I reinvest. I want to retire at 50 years old. I am 43 now. I already max out hsa, 401K, after tax non roth contribution and IRA’s. So i have no choice. Remember at 50 years old you will be tapping into brokerage and then at 60 your 401k money, then at 70 social security and then lastly roth bucket.
When you say high yield dividend....do you mean 6%-15% or so?
Too many rules and penalties with retirement accounts. I'll just pay the taxes and have complete control of my investments.
I do the same thing as you. I want to retire in my 40’s. Not when I’m 60
People seem to be trying to think there is a way out on putting it into their retirement accounts. Retirement accounts should be for low volatile stocks.
So wait, why not use an IRA until you hit living off your dividends levels and THEN just take the hit for pulling it out early into a taxable? Surely that is less of a hit then a constant tax burden?
Most of my accounts are taxable. I do have an IRA and a Roth IRA, but other than these 2, all the rest are taxable. 3 of my accounts won’t “go live” until Jan 1 (stage 2 retirement). For the record, stage 8 is bad, because I get covered in dirt! 😮
😂
Slowly building up dividend income in an HSA to hopefully phase out the contribution and cash flow my family’s healthcare
Never thought about this before
The 59-1/2 age limit can be worked around if you take a 72(t) election to retire earlier.
Its pretty obvious you should put the limit in a roth ira to avoid taxes. if you are planning on retiring early, you will have to save a lot more than that. the rest must go in a taxable account.
I INVEST in dividend stocks because i like ROI and not have to have a stock ONLY GO UP to make money.
currently have 2800 in taxable and 250 in tradIRA
There’s still Regulation 72t.
We messed up by not converting 1 of our 401k’s early enough. This will become an income booster later on. (2026) We still work part time in (our) stage 1.5 retirement. (Social security and Medicare on 1 spouse). We go “live” on stage 2 in 2025. I have nicknamed this stage “training wheels”!
You bring up something interesting... I imagine that if all your money is in an IRA then you wouldn't be as able to pass your portfolio on to a descendant.
I use a taxable account. I have my dividends around 240 a month. Currently I reinvest them but that 240 could pay for my electric, a car payment, water bill, a weekend vacation or whatever I want. I want access to my money. I still put money in a Roth Ira and my 401k through work incase I do live to be 60.
Honestly, I would use that dividend income to pay bills. Use your work to further boost the amount of money to pay the car payment off sooner. That is just me though. You are already winning the war on bills, now just get the ones you can pay off, paid off and let that profit snowball into savings.
@wewhoareabouttodiesaluteyo9303 I currently don't have a car payment. But if I needed one I could. I'd like to get to 500 a month on divi's and that money is there incase I need it.
@@mossroks I have $100 coming in and I am just snowballing it and raising it.
Sewage bill, paid off. Water bill, paid off. The next highest bill was cable at $89.99, but they dropped the price since I am on a T Mobile Family plan, so $5.99, soon to be $0. But right now my snowball is held up trying to roll over the rest of that bill in January, then onto my $130+ electric bill and the electric bill I had to pay this month.
Getting held up, but glad I have it.
Unqualified dividends in my Roth, rest taxable account
You can still contribute to a Roth IRA at those income rates. Lookup a mega Roth or often called a back door Roth IRA. It’s one of those lovey tax loopholes of the rich. Put the money in an ira and just convert it to a Roth IRA.
YOU ALWAYS MAX OUT THE ROTH IRA!!!!!
I have been using this same strategy for 8 years now. I am generating monthly income from my brokerage. I'm using the Roth IRA for its purpose, late life retirement.
Protection for short term and long term.
You Americans only get $7k per year? I did $20k contributions to my portfolios last year.
The rule of 55 let's you withdraw from a 401k without penalty starting the year you turn 55 if you quit your job or get fired.
Which is a bad idea.
@@wewhoareabouttodiesaluteyo9303 why is that?
@@wewhoareabouttodiesaluteyo9303 Not if you want to retire at 55.
Instead of sending the IRS quarterly payments why not deposit those funds in a high yield savings account (I have an account that earns 5.07% apr)?
Then pay the total next spring. The only downside is the next tax year you'll have taxes on interest earned.
If possible never give anyone a no interest loan. Prepayments to the IRS is an interest free loan.
If you owe more than certain amounts in April, and didn’t pay estimated tax penalties become involved.
I pay estimated tax quarterly due to substantial interest and dividends.
It is NOT an interest free loan. It is avoiding penalties. I calculate it close enough that I owe less than $500, or my refund is 300/500.
I’m not paying estimated taxes so I get a 5000 refund of my own money.
@@g.t.richardson6311 great point. I started late investing so I don't gave quarterly payments.
I guess I assumed that he was volunteering to pay quarterly.
@@Slackware1995 no problem
I’m semi retired with decent pension, but wife still works. I only had start doing this the last two years.
lol …. For last 10 years didn’t make shit on interest so didn’t worry about it.