Ep 14: What are the Tax Consequences of Different Accounts?

On This Episode

Different accounts have different types of tax consequences. We’ll explain the advantages and disadvantages of the accounts and how you use them.

 

Takeaways

On today’s Saving With Silverman podcast we break down different types of accounts and what the tax consequences are. We explain both the advantages and disadvantages and how you use them. 

Tax-deferred accounts

Example: 401Ks, IRAs, SEP IRAs, TSAs, 403Bs

How it works: You put money in and get a deduction. The account grows tax deferred, so you’re not paying taxes on it as it’s growing. However, at age 72, you need to take a required minimum distribution and pay taxes on that money.

Tax-free accounts

Example: Roth IRAs, Roth 401Ks, Roth 403Bs

How it works: Money goes in, and it’s after tax money, so you’re not getting a deduction on your income that year. It grows tax free, and you are not required to take that money out. Once you reach a certain age, you can take the money out tax-free.  “Not every employer offers them, but we are starting to see more and more companies,” said Mark. 

Taxable accounts

Example: After-tax brokerage accounts

How it works: It would be like your checking or savings account. If you have a brokerage account, you’re buying some investments not related to your retirement that you’re paying taxes on. Each year, you have gains and losses. 

“Too many advisors out there, especially people doing it themselves, manage the money the same whether it’s in an IRA or a taxable account, and that's really not a great idea, in my opinion,” said Mark. “There are smarter ways to do it.”

CDs

How it works: Certificates of Deposit can be held in different accounts, such as an IRA or Roth, and they typically will earn interest. At the end of maturity, you get your money back.  

“CDs aren’t as popular as they used to be because interest rates are so low,” said Mark. 

Life insurance

How it works: Money paid out to beneficiaries is totally tax-free as long as it’s paid as a death benefit. It can also be used for long-term care. 

“That's one of the huge benefits of life insurance. It’s a great way to pass money on to different generations,” said Mark. 

Too many advisors out there, especially people doing it themselves, manage the money the same whether it’s in an IRA or a taxable account, and that's really not a great idea, in my opinion.

 - Mark Silverman, CFP®

The Layout

Let’s get rolling with the first episode and you can use the timestamps below to skip around to specific topics.

0:49 – Tax-deferred accounts

1:53 – Tax-free accounts

2:46 – Taxable accounts

3:42 – CDs

4:21 – Life insurance

5:11 – Meet with Mark

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