Introduction

Have you ever wondered how millionaires keep stacking their wealth while the rest of us struggle just to make ends meet?

If so, you’re not alone, and the answers may be less mysterious than you think. In today’s deep dive, we unlock findings from a groundbreaking IRS study that reveals the five core income streams the ultra-wealthy rely on.

So if you’re ready to turbocharge your financial journey, stick around as we unpack these millionaire secrets to help you craft your own path to financial independence.

IRS Study: Over-the-Top

In 2015, the IRS released an eye-opening study called “Over-the-Top: How Tax Returns Show That the Very Rich Are Different from You and Me.”

This study is the most comprehensive analysis to date, examining the wealth accumulation methods used by the affluent to build and preserve their fortunes.

Utilizing estate tax data that spans several decades, this study uncovers and sheds light on a variety of income streams that are commonly shared among millionaires and even wealthier individuals.

This makes it an invaluable resource for anyone looking to understand the financial behaviors that lead to substantial wealth.

Millionaires’ Money-Making Methods

We’ll uncover the five hidden income streams they use, and I’m eager to know which income source you find most intriguing—whether you already use it or wouldn’t touch it with a 10-foot pole.

1. Capital Gains

On the list of income streams that millionaires tap into is the world of capital gains. Imagine buying a stock for a mere dollar and watching it skyrocket to 10 bucks—that’s a thrilling capital gain of $9 right there.

However, the tax game changes based on how long you’ve held onto the asset. Hold it for under a year, and you’re looking at being taxed at the ordinary income rate.

Play the long game, keeping that asset for over a year, and you’ll be rewarded with a more favorable long-term capital gains tax rate.

Strategies for Capital Gains

So, how do you get in on this action? Consider investing in assets known for their consistent appreciation, whether it’s stocks, real estate, or even collectibles.

Another savvy way to earn capital gains is by being the architect of your own assets.

Launch a startup, sell it for a hefty profit, or invent a groundbreaking product and cash in on the patent.

These are not just one-time wins; they’re engines for passive income, bringing in money without the grind of daily effort.

It’s no wonder the wealthy are enamored with this income source—it’s a golden ticket for accumulating long-term wealth.

2. Dividend Income

On the list is dividend income—a go-to strategy for millionaires to generate money straight from stocks.

When a company disburses dividends, it’s essentially sharing a slice of its earnings with you, the shareholder.

Not only do these payouts offer a steady income stream ideal for retirement or other financial milestones, but they often come with favorable tax rates.

Building Wealth with Dividend Income

To capitalize on dividend income, focus your portfolio on stocks from companies with a robust history of regular and increasing dividend payments.

Doing so is like getting a paycheck just for owning the shares, and the more you own, the heftier that paycheck becomes.

To zero in on the cream of the crop, scrutinize a company’s financials and growth outlook to ensure a rewarding risk-to-reward ratio.

A pro tip for maximizing your wealth is to minimize your expenses. Choose a low-cost brokerage for your stock transactions.

In the United States, I highly recommend Weeble, with zero fees for buying or selling stocks and an intuitive app for your smartphone.

Remember, the path to wealth through dividend income isn’t a sprint; it’s a marathon. Patience and discipline are essential.

Investing in top-tier dividend stocks offers a sustainable way to build a reliable income stream.