Taxable Account for Retirement (6/20/2025)

If you’ve ever been one of the people to ask me (or another financial advisor, google, or yourself….) “What else should I be doing to prepare for retirement? This is for you - 

In my opinion, the most underrated retirement savings vehicle is the trusty old taxable brokerage account.

I know—it's not flashy. It doesn’t have an acronym and there’s no tax incentive, but it’s one of the most flexible and underappreciated tools in your retirement planning toolbox.

Here’s why:

🚫 No Contribution Limits

Unlike your 401(k) or Roth IRA, there’s no cap on how much you can contribute. That makes it perfect for investing beyond your retirement accounts. High earners, super savers, or anyone who dreams of retiring at 50 - this is for you!

💰 Preferential Tax Treatment

Sure, it’s “taxable along the way,” but long-term capital gains and qualified dividends often get better tax rates than your regular income—0%, 15%, or 20%, depending on your income level. And if you have losses? You can use up to $3,000 per year to offset other income.

🧃 Full Investment Menu

You’re not limited to your employer’s mutual fund options. A taxable account gives you access to individual stocks, bonds, ETFs and more — whatever you want to invest in without restrictions.

✂️ Tax-Free Withdrawals

While the earnings are taxed as they grow, pulling cash out of a taxable account doesn’t add to your taxable income. That flexibility can be a huge asset in retirement (or anytime you need the funds). Want to retire early? The account is pretty much a necessity unless you want to be clobbered by early withdrawal penalties.  

🎁 Gifting Potential

Want to transfer appreciated stock to someone else? You can do that in-kind. The recipient keeps the original cost basis and holding period. Or, donate appreciated shares directly to a qualified charity and avoid paying capital gains tax altogether.

🪦 Step-Up in Basis

Assets held in a taxable account may receive a step-up in cost basis when you pass away. That means your heirs could potentially sell them with little or no capital gains tax—translating to a more tax-efficient inheritance.

📝 Flexible Titling

Taxable accounts allow for multiple ownership options—Joint Tenants with Right of Survivorship (JTWROS), Transfer on Death (TOD), etc.—which can simplify estate planning.

So while it doesn’t come with the same tax perks up front, a taxable brokerage account can still play a major role in your retirement planning strategy. If you’re already maxing out your other accounts (or just want more flexibility), don’t overlook this one.

The normal taxable brokerage account! Although taxable accounts are "taxable along the way," meaning they do not benefit from tax deferral, they still offer valuable advantages: Unlimited Contributions: No annual contribution limits, ideal for investing beyond retirement accounts. Preferential Tax Treatment: Long-term capital gains and qualified dividends may be taxed at 0%, 15%, or 20% (plus 3.8% NIIT above income thresholds). Net capital loss can offset up to $3,000 of other income per year. Investment Availability: Access to individual stocks/bonds and ETFs, not limited to a mutual fund lineup. Tax-Free Cash Withdrawals: While earnings are taxed within the account, cash withdrawals are excluded from taxable income. Gifts to Others: Appreciated assets may be transferred in-kind to other investors (with carryover cost basis and holding period) or to qualified charitable organizations tax-free. Step-Up in Basis: Upon death, assets may receive a reset cost basis, meaning beneficiaries may receive an effectively tax-free inheritance. Account Titling: Multiple ownership structures are allowed, including JTWROS and TOD - which may simplify estate planning.