If you have purchased our Investing for Beginners course and have started your own stock brokerage account, then congratulations; You are on your way to being a wealthier person. Investors are being encouraged to save their money for retirement through a company 401k plan or in an IRA account. This is an excellent and necessary investment strategy for retirement but there aren’t enough people investing in after tax stock brokerage accounts. Why is it important and what is the benefit to investing in a stock brokerage account? It allows you to do whatever you want with your money without paying a 10 percent penalty if you want to withdraw your money before you are 59.5 years old. The government charges a 10 percent penalty if money is removed from a retirement account before the age of 59.5. (There are some exceptions to this but usually you must pay the penalty for early withdrawal.)
We want to make it clear that we at CFE Finances do not want to discourage anyone from investing in a 401k or IRA because we all need to save for retirement in a safe and effective manner. Our goal is to build wealth through stock investing in both a stock brokerage account and a retirement plan such as a traditional 401k,IRA, Roth 401k or a Roth IRA. There might be a time when you want to withdraw money from your savings say for a down payment on a vacation home or to pay off existing debt. You are able to withdraw it from your brokerage account without paying a 10% penalty. The only other way of protecting your investments in the stock market (which may go down in a retirement fund) is to put your investments in a stable cash fund but the return is very low. Whereas you would much rather use the money to invest in real estate, automobile or something other than just losing the money or move the money into a cash account before the market drops would also be another option. It is a rewarding feeling when a stock you bought appreciates by 50 to 100 percent and you sell it to purchase something. Although we encourage investors to always be fully invested in stocks, we do all realize you need to take profits when you reach your investing goals. So our advice to you is to invest in both types of accounts. We all know cash is king so if we need to purchase goods we need it to be available while saving on fees, penalties and taxes.
A goal all investors should have is to open an after tax stock brokerage account, along with more than one retirement account. For example, open an Ira Rollover account along with your company 401k, because you are allowed to trade stocks, mutual funds or ETFs within the rollover account and most 401k plans only allow you to trade their company stock and funds which are offered by the company. We understand you cannot always invest in all of these accounts but you need to know your options.
Good luck and happy investing from CFE finances, we will be in touch with another newsletter soon. If you have any questions or concerns, please email us from our contact page.