Importance of Taxable Accounts in Retirement Planning

Aaron should consider building a taxable account for emergency reserves and investment opportunities.

### The Importance of Taxable Accounts in Financial Planning
* 💼 Aaron is considering whether to max out his Roth IRA and HSA without needing a taxable account, as he doesn't plan to **retire before 59 and a half**.
* 💰 However, financial experts emphasize the necessity of having **taxable holdings for easy access to funds**, especially for **living expenses and unique investment opportunities**.
* 📉 Withdrawing from tax-deferred accounts like 401(k)s incurs **ordinary income tax rates**, which can be **significantly higher**, making it **less appealing**.
* 🌱 Roth accounts offer **tax-free growth**, but individuals often hesitate to withdraw from them due to their potential for **significant growth over time**.
* 🔑 Establishing a strong emergency reserve through taxable accounts is **crucial for financial stability and accessibility to capital**.
* 🔄 The financial order of operations suggests that while it's beneficial to fund **Roth and HSA accounts**, it’s also important to **build a taxable account for future flexibility**.
* 📊 The expert advises that **maximizing contributions to tax-free accounts** is wise while also ensuring a **sufficient after-tax emergency fund** is in place.
* 📈 Ultimately, Aaron is encouraged to **save more and manage his investments wisely**, considering the balance between **tax-free growth** and **immediate access to funds**.

[Music] Moving on to Aon's question next. You say Aaron Aaron okay a a r o n a a Ron. He says I am not planning on retiring before 59 A5. I don't need a bridge account. Should I continue to max out my Roth IRA HSA and not have anything in taxable. I feel like I don't need taxable. Am I missing something yes do tell you I'm very confident about that. I mean look I I have clients that love the tax savings of retirement accounts but I'm just telling you you need some taxable holdings just because it's it's just the easiest access point for not only just paying your living expenses but also if you come across once in a-lifetime investments. It's just it doesn't have the the drag that retirement accounts have U. Let me let me put it this way when you pull money out of tax deferred accounts. That's your 401ks and other things. You just know you're going to pay ordinary income tax rates and that hurts because usually

those are your higher tax rates. Roth money, yes, you could get access to that. You could even get access to the capital of the initial contributions, probably tax-free. But you're going to find that, especially if you're good with math and numbers, you hate taking money out of Roth because at tax-free growth, there's a reason the government's restricting how much you can put in each year. It's because, man, when it hits critical mass, it feels so sweet watching that account grow—10,000, 100,000, whatever it is—completely tax-free. So, you kind of hesitate to want to grab that first too. So, that leaves having the taxable just to—so, you own your life is what I look at it—is it taxable? I know you say you don't need a bridge account, but man, do I like having a strong emergency reserves and access to capital. Um, and that's what the taxable accounts are going to allow you to do. I agree with you, but there's—see, Aaron threw this

thing on the end. He's like, Oh, I don't. I'm not going to re 59 and a half. Should I keep funding Roth and HSA? The thing that's so unique about Roth and HSA is they are those tax-free accounts. So, you're saying he's much younger and still in the step five of the financial order of operations. That's something, yeah, I probably just over. So, now I'm thinking is when he's thinking about building a taxable account, is making the... Is he having to make the decision, I can either put money into Roth and HSA or put it into a taxable account? In that scenario, man, this is where, because I agree with you completely with... We're talking about pre-tax accounts. You get retired. It's very expensive to go buy a car. It's going to cost you the car plus the taxes to pull it out. But with Ross and HSAs, those dollars can come out tax-free. And while I agree with they are the most valuable assets you have, you want them to grow as long as possible in terms of

getting them funded if I'm thinking through beginning to build a taxable Bridge account or continue to pile those dollars into the tax-free. I see where A's coming from because even getting those dollars into the tax-free when you get to 59 a half, there is no tax drag, and hopefully, that tax-free bucket is just big enough that yeah, you're having to pull from it. But I think having those dollars in the accounts and funded would probably be okay in the scenario, so long as you don't, as long as you know that you know that you know you won't need to leave before 59 and a half. Now yes, you can basis and that kind of Stu, you know what fixes all this? Save more, do more, both. There's a system called the financial order of operations 'cause you know what step four is going to make sure you have enough in that after-tax emergency fund, that you have all the access points that I was talking about. And then I misunderstood. I thought we were Beyond, so I missed that part if

Aaron is still in step five with the Roth and HSA. Yeah, get in there. There's a reason I was just telling you nobody wants to touch that is because it's so good. So, you need to go take advantage of what the government's offering you. Step six, the M, you know, max out your retirement accounts, getting to 25% investment rate at a tax-favored way. It's really step seven, and that's where I was maybe giving you too much credit, Aaron, is that I thought you were already kind of thinking about how you're going to use this money in retirement. So, step seven is where you think about the three buckets, where it's after-tax money, the tax-deferred money, and then the tax-free Roth money. Maybe I skipped a step there. I should have known the foo is your way of what to do with your next dollar. Love it.

I Don’t Plan to Retire Early - Do I Really Need Taxable Investments?

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Having some taxable holdings is essential for easy access to funds for living expenses and unique investment opportunities.

Retirement accounts have tax implications that can be detrimental, especially when withdrawing funds.

Taxable accounts provide flexibility and can help maintain a strong emergency reserve and access to capital.

Roth and HSA accounts are unique tax-free options for building wealth, especially for younger individuals.

The decision to fund these accounts versus a taxable account is crucial, as Roth and HSA dollars can be withdrawn tax-free.

These accounts are considered valuable assets and should be allowed to grow for as long as possible.

Building a taxable Bridge account or continuing to invest in a tax-free account are both options to consider.

The tax-free account offers no tax drag after 59 and a half, making it an attractive option if you don't need to withdraw early.

Saving more and following a financial order of operations can help ensure you have enough in your after-tax emergency fund and access points.

Maximizing Financial Benefits: Steps to Take

Aaron is in step five, focusing on the Roth and HSA, which are highly beneficial.

Step six involves maxing out retirement accounts to achieve a 25% investment rate in a tax-favored manner.

Step seven emphasizes planning for retirement by considering three buckets: after-tax money, tax-deferred money, and tax-free Roth money.