Dear DTA,
What about retirement accounts? I see a lot of great trading ideas here, but what accounts are these trades supposed to be in? I’m not sure where I should be putting my money.
-Phil B.
Hi, Phil.
I appreciate you writing in. Thanks for your readership!
You have a great question there.
Unfortunately, I can’t provide you with a simple answer.
What account(s) you decide to take advantage of is ultimately up to you.
I’ll give you a personal example.
I never used any tax-advantaged accounts.
401(k). IRA. Roth IRA. So on and so forth.
What you’re referring to as “retirement accounts”.
And I’ll tell you why.
I started saving and investing just before turning 28 years old.
I know. Late start. Tell me about it.
But I made up for lost time by being extremely aggressive with lifestyle choices so that I could save and invest as much as possible, as often as possible.
That aggressive stance worked out well.
I was able to quit my job, retire, and start living off of passive income in my early 30s.
That’s right.
I went from below broke at 27 years old to financially free at 33.
Indeed, I discuss exactly how that played out in my Early Retirement Blueprint.
The Blueprint is a step-by-step guide almost anyone can follow to their early retirement dreams.
Now, let me be clear about something.
I’m not advocating against using tax-advantaged accounts.
Not at all.
Rather, I’m only saying that anyone who has designs on living off of their investments at a relatively early age will want to think long and hard about whether or not they use a traditional retirement account.
For instance, my FIRE Fund is in a taxable account.
That’s my real-money early retirement stock portfolio.
It generates the five-figure passive dividend income I live off of.
Guess what?
I don’t have to jump through any hoops to access those dividends.
I can freely withdraw them as I need.
That kind of flexibility is, in my experience, priceless.
Meanwhile, if my investments were in a combination of retirement accounts, it would be nigh impossible for me to access that money in my 30s.
There would be a lot of hoops to jump through. Potential fees, limitations, and taxes to worry about. Red tape. Bureaucracy.
I don’t have time for any of that when I’m living out my early retirement dreams!
That said, Phil, you might be planning on a more typical career and life arc.
That would mean retiring in your 60s.
In that case, I would strongly recommend tax-advantaged retirement accounts.
This is especially the case for any 401(k) matches you might have access to through your job.
Passing up 401(k) matches at work is basically giving up free money.
And so even if you decide to take an aggressive path like I did, make sure to check into any matches your employer might offer.
Keep in mind, too, that contributions to a Roth IRA can be withdrawn at any time.
There’s a $6,000 annual contribution limit to the Roth IRA for 2019.
That’s unless you’re 50 or over, in which case there’s a catch-up contribution limit of $7,000.
That access to contributions makes the Roth IRA arguably the most flexible of all retirement accounts, and it’s something to keep in mind.
Regardless of which accounts you ultimately decide to use, we’ve got you covered with fantastic content to help you grow your wealth.
As you’ll notice in the Blueprint, I’ve used the long-term investment strategy of dividend growth investing to help me go from poverty to financial independence in short order.
Fellow contributor Dave Van Knapp did a great job of laying out exactly why this strategy is so great and how to successfully execute it.
Check out his Dividend Growth Investing Lessons for more on that.
This strategy basically involves buying shares in world-class businesses that pay their shareholders reliable and growing cash dividends.
After all, shareholders collectively own a publicly shared company.
That means any profit a company produces is owned by the shareholders.
Shareholders should demand their fair share of that profit.
That’s where a cash dividend comes in.
As profit grows, so should the dividend.
These growing cash dividends are “proof in the profit pudding”.
They’re a great litmus test for a quality business.
And they can provide an excellent foundation for financial independence, providing the passive income necessary to pay bills without having a job.
The Dividend Champions, Contenders, and Challengers list gives you plenty of ideas.
It contains invaluable data on more than 800 US-listed stocks that have raised dividends each year for at least the last five consecutive years.
Once you’re ready to actually invest your capital, I personally highlight a compelling long-term dividend growth stock investment idea every Sunday.
These ideas undergo a thorough analysis and rigorous valuation process.
When a high-quality dividend growth stock appears to be undervalued and worthy of investment, I freely expose these ideas via the Undervalued Dividend Growth Stock of the Week series.
Ultimately, it’s up to you, Phil, to decide which account(s) you use.
Your decision should factor in your retirement time frame, potential access to a 401(k) match at work, and how much red tape you want to deal with in your life.
Either way, you have some great resources here to grow your wealth and passive income.
Make sure to get started growing your money today.
I wish you luck and success.
Jason Fieber
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Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.