Hello, I am a 20 year old and I have both a Roth IRA, and a regular brokerage account. I have been riskier in my brokerage (individual stocks, options, crypto), and more conservative in my Roth (Etfs, and dividend stocks). Like the title says I hear different people say be riskier in your Roth because you don't have to pay taxes on that, and I hear other people say no make riskier investments in your brokerage because you can deduct losses from your taxes. Which one is better/ makes more sense for a 20 year old who plans on hopefully retiring early?
Is it better to take "risker" investments in a Roth or a Brokerage?
byu/ObamaBinLatten instocks
Posted by ObamaBinLatten
14 Comments
[removed]
I’d say Roth honestly. I mean, you want some safe bets in the Roth, but anything you’re considering taking gains from or actively trading would ideally be in a Roth, so you don’t have to pay taxes on it.
I’d say early in your career (20s) is the best time to make risky bets but you’re also at a time where you have less experience than later in life. I made risky bets (trading penny stocks) in my Roth IRA and it paid off, cutting years from retirement from my first year investing. But I’d recommend most people stick to index investing early on unless they have a lot of patience, high risk tolerance, and the effort to research thoroughly.
That depends on if you are good at winning or good at losing. If you expect to lose, regular brokerage. If you expect to win, Roth.
Roth for ETFs, brokerage for risky bets.
First thing to cover is that there’s a difference between compensated risk, and just being reckless. In other words, some risks come with rewards, others are just gambling.
*All investments have risks one way or another.* Even cash has risk—long term risk, in that it will steadily lose real value over the time.
And there’s nothing inherently “conservative” about an ETF, like an all-equity ETF.
You have to figure out what the goals are for your accounts, and find the investments that suit your needs and risk exposure or mitigation appropriately.
What does risky mean? High beta stocks? Or 0 dte spy calls?
I’d keep risky bets in your Roth to a limited amount. Some is ok, but you many want to spread it out. Say you want to put 10k in a stock. Determine the Roth/Brokerage spread you want: 1k/9k, 2.5k/7.5k, 5k/5k etc….
If you’re a long term investor, also remember that long term cap gains are “only” taxed at 15% under a certain total income threshold.
Also, if you’re young it’s good to remember that you may not be able to contribute to a roth later in life if your income grows and surpasses the income contribution limit. There are some workarounds to it (backdoor roth, roth 401k, mega backdoor roth, etc) but depending on your situation, none might be available.
TL:DR: made some bad bets in my roth, can’t sell for a loss, and can no longer contribute to a roth IRA, but can contribute to a Roth 401k with limited investment options.
At your age, as long as you have the money to lose, your risky investments should be in both. Assuming you’re investing with the idea of eventually spending your money, you’ll want some Wins in your brokerage so that you can harvest the earnings when you need them (without paying an early withdrawal penalty); this is how paid for the down payment to my house.
Similarly, if you’re intending to trade risky investments, it will be to your benefit to be able to trade without worrying about near-term tax liabilities.
It’s probably the same because the difference lies in your tax %.
Non-Roth: (deposit=income(1-tax%now))*compounding
Roth: (deposit=income)*compounding*(1-tax%later)
Age works like this for me. When you’re young, you can learn something, become better and use those lessons later on. When you’re old, you may not have many years left to use what you learn.
Depends on your income level tbh.
If funding a roth Ira doesn’t bat an eye, then swing for the fences.
If it takes some effort, then play it safe.
You can afford losses in the first scenario and not in the second.
Roth because you’ll have it long term and trades aren’t taxed. If you have tax write-offs it means you’ve lost money in your investments.
it’s just not as important as question as the tax characteristics of the investments.
I only do safe investments in my Roth and all of my risky investments are made in brokerage account