I just learned about the progressive tax bracket for applying income tax at Professor G's channel. Kind of embarrassing at my age but at least I'm still educating myself.😂
Hey Christina. Not embarrassing at all (: You learned it, and if you understand the progressive system & the benefit of long-term capital gains vs ordinary income, you will be ahead of 99% of the people out there. It probably doesn't feel like it, but you're ahead of the game by a lot at this point. Most *never* understand the basics of taxes (:
Great video, Jeff! Thanks for breaking it down into terms that are easily understood. And as a person who used to think taxes on were based whichever bracket you happened to be in, I appreciate the work you put into this. Also, "no video Sunday" felt a little empty ;)
Hey Nick. Thanks for watching and for leaving a comment. I know, I'm right there with you on the no Sunday thing. I'll try to get back to it this week! Thanks for your support of the channel. It's been awesome.
Thank you Soumya. I appreciate the kind words and all the support you have provided the channel! I see you are a rare one with the 6 month badge (: Very cool!
Hey Oldrin. Thanks for watching and for the comment. Taxes are boring for most people (not me), but have a huge impact on compounding long-term wealth.
Loved your videos,Always learn points that I do not know.Appreciate the kind heart in sharing.You will be remembered.Fantastic work.Looking forward for more videos
Thanks for the great video on taxes, Jeff! I followed all of it, but have to admit I got lost around 14:50 and the explanation for how much is 0% capital tax. In my planning, I had assumed I would use my total taxable income ($151k). For 0%, I'd use $96,700 since the total exceeds the 0% bracket. Then 15% for $54,300 ($151k - $96.7k). The end result is the same, but I don't follow why you're using $20,700 (I see that it is $96.7k - $76k, but it's not clicking for me).
Hey Eric. Thanks for watching and for the comment. I maybe could have done a better step by step explanation. A lot of times I dive in and then it's too late (: In step 1, the person had $76,000 of ordinary taxable income. That is always counted first (before even considering qualified dividends and long-term capital gains). They pay the 10% and 12% on the $76,000. Then that $76,000 is done being taxed. After that, we look at the special tax table. But the $76,000 of ordinary income *counts* to that table. It's not taxed at 0% because it has already been taxed at 10% and 12% in the ordinary income step. But your 'starting point' for the special tax tables is $76,000. So you have $20,700 of your qualified dividends taxed at 0%. That is the $76k ordinary income (that you already paid tax on in step 1) + the first $20,700 qualified dividends. Now your 'taxable income' (universal for all tables) has hit the $96,700 mark. So the qualified dividends and LTCG switch to 15%. Short answer is that qualified dividends and LTCG are not considered at all until the ordinary income is calculated and finished. Then the special table 'starts' at the point where the ordinary income tax table ended ($76,000 in this example).
Hey Alex. I find myself saying that one over and over at the end (unscripted). I didn't feel the need for an 'official' outro, but that one feels like the right vibes (and a major truth) of the channel. Thanks for watching!
No problem Robert. Thanks for taking the time to watch the video. This tax stuff is important to building and keeping wealth. Will have more videos about it soon.
ThanX Jeff... GREAT explanation of the tax program..... All great information..... Hey, I made the ticker tape parade.....!!! Looking forward to that Roth conversion video.... Please include ages - example... wife is 55 and still working and she has a greater $$$ amount in her Traditional IRA.... to convert.. Trying to feel out a timeline for her should she "retire" or go part time in 5 years or so to begin a conversion.... Thanks again..... Love your work, thoughts and jokes..... Take care and have a great week ahead.....
Thanks Lance! I appreciate the positive feedback you provide the channel. Of course you made the ticker! haha. I think you'll like the video. I'll try to use examples that apply to different age brackets. I'm going to 'use myself' as an example in one of the videos (based on my goals and projections, of course anything can happen).
With those videos brotha you should discuss taxes as well in regards to custodial roth ira accounts well you know custodial accounts for kids. Some parents don't understand or realize that when they open one for their kids or kid that the income is added to our yearly income threshold
Hey Jeff. I've wanted to do a video about this for a while now. I think getting kids started early is key to this financial freedom thing. I will make sure this idea is on the list. Thanks!
Hands down the best explanation of capital gains and the tax brackets. I'm assuming this is for tax year 2025, so we won't see the impact of the changes unit Q1 2026
Thank you for the kind words! You are correct, this is for the 2025 tax year, which will be filed and accounted for in April of 2026 (for most people anyway). Slight correction to save confusion: It will be *due* by April 2026 for most people. 'Taken care of' by most in February or March (:
One subject that I would love to see a practical video on is when and how to pay quarterly estimated taxes for investors earning income from equities. For example, I am expecting to earn maybe around $12,000 per year from investments in a taxable brokerage in addition to my job salary. Do I need to pay quarterly estimated taxes? What are some tips and tricks to doing so?
Hey Dan. What my wife and I have done historically is increase our taxes that come from our job (via W-4 changes) to cover the gains of investments. I haven't had to pay quarterly taxes. If you don't have a W2 job to increase the withholdings (freelancers, investors that recognize a lot of gains, or self-employed people) then you will want to make estimated quarterly payments. Especially if you aren't paying at least 90% of the tax liability each quarter. This is good video idea, thanks (:
Great video explaining what is considered ordinary income. Do dividends count as total income when it comes to your Roth IRA or is only the ordinary income counted to be within the brackets for the Roth IRA?
Thanks for watching and for the kind words. The beauty about Roth IRA accounts is that *no* income counts to taxable income. It is a great place to stash away ordinary income producers like covered call ETFs or REITS.
Thanks guys, great episodes. When selecting factors, is there any reason to diversify exposure on that factor with multiple vehicles instead of choosing just one . For example, if I wanted to allocate 15% in to Value . Can I allocate 5% SPYV, 5% to SCHV, and 5% VTV? What are your thoughts?. Thanks in advance.
Thanks for watching and for the question. Absolutely! There is nothing wrong with picking multiple high quality ETFs within a category. People misunderstand how portfolio overlap works within a section. For example, you could have 100% SCHG within your growth section. Or 100% QQQM. Or 50% SCHG and 50% QQQM. A lot of people will say the first 2 options are great, but the 3rd one is bad because it has a lot of overlap. This has no logic and makes no sense because it is within the growth category. SCHG has 100% overlap with itself in that category. QQQM has 100% overlap with itself. And a split is technically the most diverse assuming they are both solid ETF options. Short answer, yes, feel free to fill up the value, growth, or cornerstone sections of the portfolio with multiple ETFs. Just make sure each ETF is high quality, of course.
So if you have income from a Roth IRA, are those tax exempt? So you could have like $20k income from a Roth and $50k income of qualified dividends from a taxable and be tax free in retirement, correct? Would also be interesting to see how Roth conversions play a part in there.
You nailed it. If you have Roth IRA income it will not count to your taxable income at all. This is where I will stick JEPQ someday in my retirement plan (post Roth Conversions). I'll have SCHD in my taxable to have it count as zero. With $1M in Roth (all JEPQ) and $1M in taxable (all in SCHD), you would pay 0% taxes forever (assuming no other high income from a pension of something). I am going to detail out my rough plan in a video in the coming weeks to show the conversion process.
@@JeffTeeples Right, that's interesting. Had never thought of tax free JEPQ from a Roth. Makes sense though. I feel this is very different than I've ever thought of retirement income from a portfolio before. Learning for sure.
Hey Idan. Absolutely. I stuck strictly tot he federal taxes that will apply to everyone in the US for this one. Most states have varying state taxes. I happen to live in one that doesn't (WA), but they find other ways to get us here (:
I like SCHG a lot. It is a top tier growth ETF right along with QQQM. SMH and SOXX are great, in fact, they have been better than SCHG, QQQM, and even VGT. But they are too focused on one sub-section of tech for my comfort. 25 semi-conductor companies have done amazingly well, and it likely will with all the compute we'll need for tech in general (AI and beyond). I'm comfortable with my VGT level of coverage there along with the rest of tech. I don't like the eggs in one basket. However, it has been a heck of a basket! (:
@ thanks for your response. My allocation is around 25% in technology sector (around 8% each in SMH, SOXX AND VGT). and around 23% in s&p and and SCHD is around 20% and rest around 30% is large growth like SCHG and QQQM and around 2% in IBIT. What do you think about this allocation. My goal is to have this money invested for 15-20 years. Do you think it looks good or should it be less in tech and more in other areas ? Let me know your thoughts if possible. Thanks again
I think you have great holdings that will work well as long as you stay the course during rough markets. At that time, keep adding more to the portfolio. I've learned this with VGT over the years. When it goes back, it goes REAL bad. But it always bounces back so keep loading up when everyone else is panicking.
@@JeffTeeples thanks. I have automatic weekly withdrawn set up so I don’t let emotions come in. My goal is to live only on dividends (if possible) after 10-15 years without touching original investment etc. Hope it will work.
Hey Jeff, are (SCHD) reinvested, qualified dividends considered short term capital gains in the 1st year of ownership? But after the 1st year, would be LTCG. Is that correct?
Hey Jim. All dividends will be qualified for SCHD as long as you held it for 60 days before the ex-dividend date. ( *all* of my personal SCHD dividends have been qualified over the years, so I don't even know if the restrictions apply in general). SCHD dividends are effectively LTCG for tax purposes.
Jeff, Amazing video thank you!! If I have a sep ira, what happens when I start pulling money out in retirement? As far as taxes of course. Also, now I can deduct my contribution to the sep ira from my taxes but then will I have to pay for that later? Another question I have is: for let's say dividends from SCHD which is qualified dividend ( DRIP system on), do I pay the taxes on it in the year which it was received?
Hey Idan. Thanks for watching. These are great questions. In your SEP IRA, you will receive the tax deduction in the year you put it in (reduces your taxable income and increases your net paycheck because it is taxed at 0% that year). You're right in that you will pay taxes on the withdrawals in retirement in the year you make them. It is an extra bummer because qualified dividends and long-term capital gains give you zero advantage in the account as well. When you make the withdrawal, it will *all* be taxed as ordinary income in that year. If you withdraw $50,000 that year, it is $50,000 of ordinary income for your taxes. This is why most have it backwards IMO. I load up on VGT and QQQM in retirement accounts, and SCHD in taxable. As far as paying taxes on SCHD dividends, yes, you do pay them in the year the dividend was paid (with DRIP off or on). However, they are 'taxed' like long-term capital gains. They will hit the 0% if income is not too high (just like the qualified section from the video). Again, this is why SCHD is great in taxable accounts. In a SEP IRA, the dividends are ultimately non-qualified.
Hi Jeff, thanks for the explanation! I have one question to clarify: You mentioned using VGT or QQQM for the SEP IRA. Is the main reason because they pay fewer or no dividends and have higher growth potential, making them more suitable for the retirement account where ordinary income tax applies? Also, would SWPPX be a good choice for the SEP IRA as well? I understand why SCHD is better suited for a taxable account, but I’m just trying to understand why VGT or QQQM might be preferable over options like SWPPX, VOO, or VTI in a retirement account. Hope that makes sense!
Hey Idan. VOO, SWPPX, and VTI are great for an IRA. In fact, I think all of the holdings we have discussed work awesome in both. I guess I was just emphasizing that people seem really down on SCHD in a taxable because of the dividends paid. I think it is a bit goofy because the dividends are all taxed at a special rate, whereas the same dividends in an IRA are treated (unfavorably) as ordinary income, ultimately. Anything with growth and qualified dividends is just as good in a taxable or an IRA. There are valid arguments on both sides of dividends vs price appreciation. Now ordinary dividends like JEPQ or O are objectively better in an IRA because they are taxed *now* & *unfavorably*
Hi Jeff, I have one more question I keep wanting to ask you. Let’s say I currently have $50k in a taxable brokerage account invested in QQQM, and it has grown over the years with only dividend reinvestments. Now, I’m thinking of starting weekly contributions to that QQQM, but in a separate taxable brokerage account. Does it make a difference if I start these new contributions in a different account, and eventually withdraw from both accounts after several years? Or would it be better to move my current amount to the new account and contribute there? In other words, when it comes to the final value, will it matter if I’m withdrawing from both accounts in the future versus combining everything in one today? Does it effect the compund and growth of it?
This is a great question. This is one of the few things that investing rules makes easy. You create a new 'tax lot' every time you buy QQQM in a taxable account. It doesn't matter if it was from new contributions or dividends reinvested. The tax lot is created that day and will forever be on its own timer for long-term capital gains vs short term capital gains. When you go to sell the QQQM (in any account), make sure the tax lot you are selling is at least a year old if you have gains. This will trigger 'long-term capital gains tax' at the favorable rate. If you transfer holdings from one broker to another, your tax lots will follow. So you get credit for your purchase date and long-term holdings remain long-term.
Hi Jeff, I'm looking forward to your insights on BlackRock's new ETFs, TOPT and QTOP! These focus on the top 20 S&P stocks and the top 30 Nasdaq stocks, respectively. I'd love to hear your thoughts on them.
I will keep my eyes on those ones. Interesting concept, and reasonable expense ratios. I think I will end up liking VOO and QQQM better, just like I prefer VGT to XLK (similar concept). The holdings will be identically weighted in all the ETFs, but of course more % to the ones that hold fewer companies.
@@JeffTeeples Something interesting to think about following Trump's win. POTENTIAL RISKS 1. Inflation and Interest Rates: Tariffs & Immigration Policy: Inflation may rise to 4%-5%. Effect on Bonds: Long-term bonds (TLT) could see further losses. Risk of Rate Hikes: Fed may need to tighten policy, risking a bear market. 2. Banking Sector Vulnerabilities: Unrealized bond losses could deepen, potentially triggering another banking crisis. 3. Higher Borrowing Costs: Impacted Sectors: Small/mid-cap companies, REITs, Telcos, Airlines, and Financials. Survivors: Companies with strong pricing power, low debt, and high cash reserves. In scenarios where inflation rises and interest rates increase, companies with strong balance sheets and lower debt levels are generally more resilient. The iShares Top 20 U.S. Stocks ETF (TOPT) focuses on the 20 largest U.S. companies by market capitalization, which often have substantial cash reserves and manageable debt. In contrast, the Vanguard S&P 500 ETF (VOO) encompasses a broader range of 500 companies, including those with varying debt levels. Therefore, in adverse economic conditions characterized by higher borrowing costs, TOPT's concentration on financially robust large-cap companies may offer better resilience compared to the more diversified VOO.
Legion of Boom, you must be from Washington! Im in north Seattle so i definitely understand that seahawk term though never sure what it actually meant. 😅
Haha, absolutely. I love in WA State and go to a couple Hawks games each year. I'm a bigger Portland Trail Blazer fan (born in Portland and branded early), but the Hawks are my NFL team.
Maximize your 2025 tax savings with these expert tips - drop your questions below, and let's grow together!
I just learned about the progressive tax bracket for applying income tax at Professor G's channel. Kind of embarrassing at my age but at least I'm still educating myself.😂
Hey Christina. Not embarrassing at all (: You learned it, and if you understand the progressive system & the benefit of long-term capital gains vs ordinary income, you will be ahead of 99% of the people out there. It probably doesn't feel like it, but you're ahead of the game by a lot at this point. Most *never* understand the basics of taxes (:
Thanks!
Thank you Brianna! I appreciate it (:
keep pumping out those financial informational videos Jeff!!!!
Will do Kevin. Thank you for the continued support!
Great video, Jeff! Thanks for breaking it down into terms that are easily understood. And as a person who used to think taxes on were based whichever bracket you happened to be in, I appreciate the work you put into this. Also, "no video Sunday" felt a little empty ;)
Hey Nick. Thanks for watching and for leaving a comment. I know, I'm right there with you on the no Sunday thing. I'll try to get back to it this week! Thanks for your support of the channel. It's been awesome.
Really great video.. as always Jeff! Many missing connecting dots on taxes and capital gains ae now connected with simple explanations and examples
Thank you Soumya. I appreciate the kind words and all the support you have provided the channel! I see you are a rare one with the 6 month badge (: Very cool!
Love it, i was just talking with someone earlier today about taxes and stocks haha!
Hey Oldrin. Thanks for watching and for the comment. Taxes are boring for most people (not me), but have a huge impact on compounding long-term wealth.
@@JeffTeeples I love to learn about it, and you are a great teacher very informative!
Loved your videos,Always learn points that I do not know.Appreciate the kind heart in sharing.You will be remembered.Fantastic work.Looking forward for more videos
I appreciate the kind words Jagan. Thanks for taking the time to watch the video and for leaving a comment.
Thanks for the great video on taxes, Jeff! I followed all of it, but have to admit I got lost around 14:50 and the explanation for how much is 0% capital tax. In my planning, I had assumed I would use my total taxable income ($151k). For 0%, I'd use $96,700 since the total exceeds the 0% bracket. Then 15% for $54,300 ($151k - $96.7k). The end result is the same, but I don't follow why you're using $20,700 (I see that it is $96.7k - $76k, but it's not clicking for me).
Hey Eric. Thanks for watching and for the comment.
I maybe could have done a better step by step explanation. A lot of times I dive in and then it's too late (:
In step 1, the person had $76,000 of ordinary taxable income. That is always counted first (before even considering qualified dividends and long-term capital gains).
They pay the 10% and 12% on the $76,000. Then that $76,000 is done being taxed.
After that, we look at the special tax table. But the $76,000 of ordinary income *counts* to that table. It's not taxed at 0% because it has already been taxed at 10% and 12% in the ordinary income step. But your 'starting point' for the special tax tables is $76,000. So you have $20,700 of your qualified dividends taxed at 0%. That is the $76k ordinary income (that you already paid tax on in step 1) + the first $20,700 qualified dividends.
Now your 'taxable income' (universal for all tables) has hit the $96,700 mark. So the qualified dividends and LTCG switch to 15%.
Short answer is that qualified dividends and LTCG are not considered at all until the ordinary income is calculated and finished. Then the special table 'starts' at the point where the ordinary income tax table ended ($76,000 in this example).
@@JeffTeeples Brilliant! Thanks for the added explanation. Crystal clear and very much appreciated!
I happened upon this video just now and you answered multiple questions I had about capital gains tax. Thank you! @@JeffTeeples
Awesome video, great information as always!
Thanks Oldrin. I'm here to help as much as possible. This tax stuff is crazy powerful, especially in retirement.
Great video thanks. And I love your quote: Money is overrated but freedom is not!
Hey Alex. I find myself saying that one over and over at the end (unscripted). I didn't feel the need for an 'official' outro, but that one feels like the right vibes (and a major truth) of the channel. Thanks for watching!
I was wondering what happened on Sunday LOL, very informative and clear thank you 😊
Thanks for watching. I hope to be back on Sunday this week (:
great video as always!
Thank you Kumar. I appreciate the kind words and continued support of the channel.
Very well explained. And I have never understood how these taxes and rates were applied. Thank you Jeff!!
No problem Robert. Thanks for taking the time to watch the video. This tax stuff is important to building and keeping wealth. Will have more videos about it soon.
ThanX Jeff... GREAT explanation of the tax program..... All great information..... Hey, I made the ticker tape parade.....!!! Looking forward to that Roth conversion video.... Please include ages - example... wife is 55 and still working and she has a greater $$$ amount in her Traditional IRA.... to convert.. Trying to feel out a timeline for her should she "retire" or go part time in 5 years or so to begin a conversion.... Thanks again..... Love your work, thoughts and jokes..... Take care and have a great week ahead.....
Thanks Lance! I appreciate the positive feedback you provide the channel. Of course you made the ticker! haha.
I think you'll like the video. I'll try to use examples that apply to different age brackets. I'm going to 'use myself' as an example in one of the videos (based on my goals and projections, of course anything can happen).
With those videos brotha you should discuss taxes as well in regards to custodial roth ira accounts well you know custodial accounts for kids. Some parents don't understand or realize that when they open one for their kids or kid that the income is added to our yearly income threshold
Hey Jeff. I've wanted to do a video about this for a while now. I think getting kids started early is key to this financial freedom thing. I will make sure this idea is on the list. Thanks!
Hands down the best explanation of capital gains and the tax brackets. I'm assuming this is for tax year 2025, so we won't see the impact of the changes unit Q1 2026
Thank you for the kind words! You are correct, this is for the 2025 tax year, which will be filed and accounted for in April of 2026 (for most people anyway).
Slight correction to save confusion: It will be *due* by April 2026 for most people. 'Taken care of' by most in February or March (:
One subject that I would love to see a practical video on is when and how to pay quarterly estimated taxes for investors earning income from equities. For example, I am expecting to earn maybe around $12,000 per year from investments in a taxable brokerage in addition to my job salary. Do I need to pay quarterly estimated taxes? What are some tips and tricks to doing so?
Hey Dan. What my wife and I have done historically is increase our taxes that come from our job (via W-4 changes) to cover the gains of investments. I haven't had to pay quarterly taxes.
If you don't have a W2 job to increase the withholdings (freelancers, investors that recognize a lot of gains, or self-employed people) then you will want to make estimated quarterly payments. Especially if you aren't paying at least 90% of the tax liability each quarter.
This is good video idea, thanks (:
Great video explaining what is considered ordinary income. Do dividends count as total income when it comes to your Roth IRA or is only the ordinary income counted to be within the brackets for the Roth IRA?
Thanks for watching and for the kind words. The beauty about Roth IRA accounts is that *no* income counts to taxable income. It is a great place to stash away ordinary income producers like covered call ETFs or REITS.
Thanks guys, great episodes. When selecting factors, is there any reason to diversify exposure on that factor with multiple vehicles instead of choosing just one . For example, if I wanted to allocate 15% in to Value . Can I allocate 5% SPYV, 5% to SCHV, and 5% VTV? What are your thoughts?. Thanks in advance.
Thanks for watching and for the question. Absolutely! There is nothing wrong with picking multiple high quality ETFs within a category. People misunderstand how portfolio overlap works within a section.
For example, you could have 100% SCHG within your growth section. Or 100% QQQM. Or 50% SCHG and 50% QQQM. A lot of people will say the first 2 options are great, but the 3rd one is bad because it has a lot of overlap. This has no logic and makes no sense because it is within the growth category. SCHG has 100% overlap with itself in that category. QQQM has 100% overlap with itself. And a split is technically the most diverse assuming they are both solid ETF options.
Short answer, yes, feel free to fill up the value, growth, or cornerstone sections of the portfolio with multiple ETFs. Just make sure each ETF is high quality, of course.
@ thanks for the comments and for your videos.
All great Information.
Good luck in your investments.
So if you have income from a Roth IRA, are those tax exempt? So you could have like $20k income from a Roth and $50k income of qualified dividends from a taxable and be tax free in retirement, correct? Would also be interesting to see how Roth conversions play a part in there.
You nailed it. If you have Roth IRA income it will not count to your taxable income at all.
This is where I will stick JEPQ someday in my retirement plan (post Roth Conversions). I'll have SCHD in my taxable to have it count as zero.
With $1M in Roth (all JEPQ) and $1M in taxable (all in SCHD), you would pay 0% taxes forever (assuming no other high income from a pension of something). I am going to detail out my rough plan in a video in the coming weeks to show the conversion process.
@@JeffTeeples Right, that's interesting. Had never thought of tax free JEPQ from a Roth. Makes sense though. I feel this is very different than I've ever thought of retirement income from a portfolio before. Learning for sure.
Hi Jeff, for someone who lives in California, isn't there also state tax to pay in addition to the 0-20% capital gains tax? Like 13.7% state tax?
Hey Idan. Absolutely. I stuck strictly tot he federal taxes that will apply to everyone in the US for this one. Most states have varying state taxes. I happen to live in one that doesn't (WA), but they find other ways to get us here (:
If you can, what are your thoughts on SMH, SOXX and SCHG ETF?
I like SCHG a lot. It is a top tier growth ETF right along with QQQM.
SMH and SOXX are great, in fact, they have been better than SCHG, QQQM, and even VGT. But they are too focused on one sub-section of tech for my comfort. 25 semi-conductor companies have done amazingly well, and it likely will with all the compute we'll need for tech in general (AI and beyond). I'm comfortable with my VGT level of coverage there along with the rest of tech. I don't like the eggs in one basket. However, it has been a heck of a basket! (:
@ thanks for your response. My allocation is around 25% in technology sector (around 8% each in SMH, SOXX AND VGT). and around 23% in s&p and and SCHD is around 20% and rest around 30% is large growth like SCHG and QQQM and around 2% in IBIT. What do you think about this allocation. My goal is to have this money invested for 15-20 years. Do you think it looks good or should it be less in tech and more in other areas ? Let me know your thoughts if possible. Thanks again
I think you have great holdings that will work well as long as you stay the course during rough markets. At that time, keep adding more to the portfolio. I've learned this with VGT over the years. When it goes back, it goes REAL bad. But it always bounces back so keep loading up when everyone else is panicking.
@@JeffTeeples thanks. I have automatic weekly withdrawn set up so I don’t let emotions come in. My goal is to live only on dividends (if possible) after 10-15 years without touching original investment etc. Hope it will work.
Hey Jeff, are (SCHD) reinvested, qualified dividends considered short term capital gains in the 1st year of ownership? But after the 1st year, would be LTCG. Is that correct?
Hey Jim. All dividends will be qualified for SCHD as long as you held it for 60 days before the ex-dividend date. ( *all* of my personal SCHD dividends have been qualified over the years, so I don't even know if the restrictions apply in general).
SCHD dividends are effectively LTCG for tax purposes.
Jeff, Amazing video thank you!!
If I have a sep ira, what happens when I start pulling money out in retirement? As far as taxes of course.
Also, now I can deduct my contribution to the sep ira from my taxes but then will I have to pay for that later?
Another question I have is: for let's say dividends from SCHD which is qualified dividend ( DRIP system on), do I pay the taxes on it in the year which it was received?
Hey Idan. Thanks for watching. These are great questions.
In your SEP IRA, you will receive the tax deduction in the year you put it in (reduces your taxable income and increases your net paycheck because it is taxed at 0% that year).
You're right in that you will pay taxes on the withdrawals in retirement in the year you make them. It is an extra bummer because qualified dividends and long-term capital gains give you zero advantage in the account as well. When you make the withdrawal, it will *all* be taxed as ordinary income in that year. If you withdraw $50,000 that year, it is $50,000 of ordinary income for your taxes.
This is why most have it backwards IMO. I load up on VGT and QQQM in retirement accounts, and SCHD in taxable.
As far as paying taxes on SCHD dividends, yes, you do pay them in the year the dividend was paid (with DRIP off or on). However, they are 'taxed' like long-term capital gains. They will hit the 0% if income is not too high (just like the qualified section from the video). Again, this is why SCHD is great in taxable accounts. In a SEP IRA, the dividends are ultimately non-qualified.
Hi Jeff, thanks for the explanation! I have one question to clarify: You mentioned using VGT or QQQM for the SEP IRA. Is the main reason because they pay fewer or no dividends and have higher growth potential, making them more suitable for the retirement account where ordinary income tax applies?
Also, would SWPPX be a good choice for the SEP IRA as well? I understand why SCHD is better suited for a taxable account, but I’m just trying to understand why VGT or QQQM might be preferable over options like SWPPX, VOO, or VTI in a retirement account. Hope that makes sense!
Hey Idan. VOO, SWPPX, and VTI are great for an IRA. In fact, I think all of the holdings we have discussed work awesome in both.
I guess I was just emphasizing that people seem really down on SCHD in a taxable because of the dividends paid. I think it is a bit goofy because the dividends are all taxed at a special rate, whereas the same dividends in an IRA are treated (unfavorably) as ordinary income, ultimately.
Anything with growth and qualified dividends is just as good in a taxable or an IRA. There are valid arguments on both sides of dividends vs price appreciation. Now ordinary dividends like JEPQ or O are objectively better in an IRA because they are taxed *now* & *unfavorably*
Got it. Thank you Jeff!
Hi Jeff, I have one more question I keep wanting to ask you.
Let’s say I currently have $50k in a taxable brokerage account invested in QQQM, and it has grown over the years with only dividend reinvestments. Now, I’m thinking of starting weekly contributions to that QQQM, but in a separate taxable brokerage account.
Does it make a difference if I start these new contributions in a different account, and eventually withdraw from both accounts after several years? Or would it be better to move my current amount to the new account and contribute there?
In other words, when it comes to the final value, will it matter if I’m withdrawing from both accounts in the future versus combining everything in one today? Does it effect the compund and growth of it?
This is a great question. This is one of the few things that investing rules makes easy. You create a new 'tax lot' every time you buy QQQM in a taxable account. It doesn't matter if it was from new contributions or dividends reinvested. The tax lot is created that day and will forever be on its own timer for long-term capital gains vs short term capital gains.
When you go to sell the QQQM (in any account), make sure the tax lot you are selling is at least a year old if you have gains. This will trigger 'long-term capital gains tax' at the favorable rate.
If you transfer holdings from one broker to another, your tax lots will follow. So you get credit for your purchase date and long-term holdings remain long-term.
Hi Jeff, I'm looking forward to your insights on BlackRock's new ETFs, TOPT and QTOP! These focus on the top 20 S&P stocks and the top 30 Nasdaq stocks, respectively. I'd love to hear your thoughts on them.
I will keep my eyes on those ones. Interesting concept, and reasonable expense ratios. I think I will end up liking VOO and QQQM better, just like I prefer VGT to XLK (similar concept). The holdings will be identically weighted in all the ETFs, but of course more % to the ones that hold fewer companies.
@JeffTeeples thanks for the insight. But the performance seems good so far!
@@JeffTeeples Something interesting to think about following Trump's win.
POTENTIAL RISKS
1. Inflation and Interest Rates:
Tariffs & Immigration Policy: Inflation may rise to 4%-5%.
Effect on Bonds: Long-term bonds (TLT) could see further losses.
Risk of Rate Hikes: Fed may need to tighten policy, risking a bear market.
2. Banking Sector Vulnerabilities:
Unrealized bond losses could deepen, potentially triggering another banking crisis.
3. Higher Borrowing Costs:
Impacted Sectors: Small/mid-cap companies, REITs, Telcos, Airlines, and Financials.
Survivors: Companies with strong pricing power, low debt, and high cash reserves.
In scenarios where inflation rises and interest rates increase, companies with strong balance sheets and lower debt levels are generally more resilient. The iShares Top 20 U.S. Stocks ETF (TOPT) focuses on the 20 largest U.S. companies by market capitalization, which often have substantial cash reserves and manageable debt. In contrast, the Vanguard S&P 500 ETF (VOO) encompasses a broader range of 500 companies, including those with varying debt levels.
Therefore, in adverse economic conditions characterized by higher borrowing costs, TOPT's concentration on financially robust large-cap companies may offer better resilience compared to the more diversified VOO.
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Thanks for watching and for your long-time support!
Legion of Boom, you must be from Washington! Im in north Seattle so i definitely understand that seahawk term though never sure what it actually meant. 😅
Haha, absolutely. I love in WA State and go to a couple Hawks games each year. I'm a bigger Portland Trail Blazer fan (born in Portland and branded early), but the Hawks are my NFL team.