Dividend paying stocks vs. Brokerage account

[retirein10yrs (Marc)]

Hi Jeremy, I’m currently maxing out my workplace 401k ($19,500), HSA plan ($3,550) and my ROTH IRA ($6000). I’m also building up my dividend stock portfolio - currently at $148K & pumping $50k/year with a a 4.32% dividend yield.

My plan is to retire early in 5 years at age 54 & would like utilize my dividend stock portfolio as my passive income stream to support me for about 6 years until I can dip into my ROTH IRA- age 59; social security-age 62; and 401k- age 67.

Here’s my dilemma…I’m getting taxed twice investing in my dividend stocks. Also, it’s increasing my MAGI each year in where I will have reduced ROTH IRA contributions and soon won’t be able to contribute at all since my MAGI will be above $137k.

Should I divert most or all of my $50k into a brokerage account & buy VTI, etc. instead? This way it lowers my MAGI and my dividends won’t be taxed. At age 54, I can sell some of my shares to fund my early retirement and will be at a lower tax bracket.

Thoughts? Thank you very much!

[Jeremy (Jeremy Schneider)]

Hey @retirein10yrs!

Well congrats on killing it! If I were you, I’d get over the dividend thing. That dream of getting a check for free is nice, but the math behind it doesn’t really make sense, and you can still get those free checks another way (selling a percent of shares each year).

Look through this post where I answer a similar question:

Dividend stocks investing

Hey Jeremy wanted to let you know how much I love this community you created, as well as your Instagram posts. I know you preach the index fund investing for wealth. But how does that compare to investing into dividend paying stocks, and building that up to cover living expenses. Appreciate any input from anybody as well.

Also, since you’re not planning to retire THAT far out from 59.5, I would look into the Rule of 55!

[retirein10yrs (Marc)]

Well, I wasn’t killing it for 42 years of my life so just making up for lost time. You make a solid point for selling % of shares. Also, I will shift towards buying some growth stocks (tech & disrupter). Thanks for your insights!