A Roth IRA is an Individual Retirement Arrangement that is funded with post-tax money. That is, you’re investing in the account with money that has already been taxed or you’re paying tax on the money when you convert it from tax-deferred to Roth.
When you buy mutual funds, ETFs, or individual stocks or bonds outside of your tax-advantaged retirement accounts with your own hard-earned after-tax dollars, they will reside in a plain old brokerage account.
This type of non-qualified (non-tax-advantaged account) is commonly referred to as a taxable account, which sounds like a terrible place to invest.
Short-term capital gains and ordinary, non-qualified dividends are taxed at your marginal income tax rate. Long-term (assets held > one year) capital gains and qualified dividends are typically taxed, as well, but at a preferential capital gains rate.
So you want your taxable account to resemble a Roth IRA? The following criteria must be met: – No tax on the growth – No tax on withdrawals