Genuine qt: if capital gains tax is max 20% but hysa is taxed per your income tax guideline (so federal could be 37% or so), doesn’t it make sense to put most of your savings in brokerage (assuming you will hold for at least a year)? Or am I missing something? Does brokerage get double taxed with your income tax and capital gains tax? Just trying to understand if I should move from hysa to brokerage since I’m not going to need it within the year anyway

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What happens if you invest the money instead of saving in HYSA and you lose 20-30% in a year if you need the money then? Will that be a problem?

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The stock market isn’t always up… that’s the problem.

Yes, if you can ride out any short term volatility, keeping money in a brokerage should far outweigh a HYSA both due to return and favorable tax status. But not everyone can afford that kind of patience.

They are different tools for different utilities

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i invest 100% of our excess income, other than 1 month spending in cash, (after 401k, BD Roths, etc) into brokerage for long term growth. if EY1’s scenario happens and I need cash, I access cash (tax free) as a margin loan against brokerage, and payoff with future income. not all are comfortable with this, but has suited us well. Live Long And Prosper 🖖

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HYSA below the FDIC limit is essentially risk free.

If you have money in a HYSA tax efficiency is not your main priority; liquidity and capital preservation are.

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Are you talking about putting the money in money market fund that earns more or less the same interest as a HYSA? That’ll be taxed as ordinary income, regardless of how long you leave the money in there.

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Super helpful! Thank you everyone for all the extra perspectives I was missing before!

Regular taxable interest is the most heavily taxed form of investment income (federal marginal rate + state marginal rate + NIIT).

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