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7 MAJOR Benefits of a Brokerage Account in Retirement · Retirement Answers

• 0:00
  Jacob Duke: Hey, friends, and welcome back to another episode of Retirement Answers. My name is Jacob Duke. I'm your host, as always. Today on the show, I want to talk about the seven reasons that I am a huge fan of the taxable brokerage account. This is an account type that is not like your IRA.
• 0:17
  It is not like your Roth IRA. It is different from those, but it could be very valuable for you as you are in your early retirement years and throughout retirement. So today, I want to share with you these seven reasons that I think this could be the most powerful account type that you can have as you enter your retirement years. But if you're new here, welcome. My name is Jacob Duke.
• 0:38
  As I mentioned earlier, I'm a certified financial planner and the owner of River Tree Wealth, where we help people just like you plan smarter and retire better. And one of the biggest questions that always comes up as someone's approaching retirement or maybe early stages of retirement is is how do I create my paycheck? How do I replace my income? And how do I do so without maximizing or increasing my taxes? And what if I've got ACA subsidy, insurance limits to kind of stay under from an income perspective?
• 1:07
  All of these questions start to go around in your head, and this is where different types of money actually come into play. This is what's called tax diversification. So I want to get into that in just a moment, but before we jump into the benefits of this account type, this taxable brokerage account, I want to talk about how this is different from a four zero one ks or a Roth IRA and some of the differences there. So to start, let's just review really quickly. The four zero one ks, at least the tax deferred side of the four zero one ks, that is all pre tax money, meaning you have not paid any taxes on those funds whenever you put that into your four zero one k account.
• 1:45
  The same thing applies to a traditional IRA. Whenever you make a traditional IRA contribution, assuming all the different rules are met, you can do so in a tax deductible manner, meaning you will pay taxes later rather than on the front end whenever you put the money in. So whenever you take the money out in the future, that's when you'll pay your taxes. Now the Roth IRA is different. You pay the taxes on the front end in the year in which you earn the income and also the year in which you make that contribution, whether it be to a Roth four zero one k or a Roth IRA, you are paying the taxes and putting what's called after tax money into that account type.
• 2:20
  Now, with the benefit of that is you get to let that money grow in a tax sheltered way, and then upon distribution, assuming that you take that money out whenever you are 59.5 and the account isn't open for five years, you can take out every single dollar completely tax and penalty free. Now remember with a Roth IRA, anytime you would like, you can always take out your contributions that you put in. Really, that five year rule and the age requirement of 59.5, that really applies to the growth or the earnings within the Roth IRA. So tax deferred four zero one k and IRAs, you get to take a tax deduction on the front end, and you pay tax later when you take it out. On a Roth, you pay tax on the front end, and you don't pay tax whenever you take it out, assuming those different rules are met.
• 3:06
  Now, the taxable brokerage account is different in the fact that technically, whenever you put money into that brokerage account, really what it is, is you're putting after tax money into it. Meaning you make your income, you take that money home, it goes into your bank account, then you can take it from your bank account and invest it in that brokerage account. When you do that, you do not get a tax deduction at all. Okay? So you get to put the money in, and then whenever it grows, it also does not get a tax sheltered growth like a Roth or a four zero one k might have.
• 3:38
  You actually have to pay taxes year to year on that. That's why you would be issued a ten ninety nine to pay taxes on if you've got dividends or interest or maybe you've realized some capital gains within the account. It is not tax sheltered, so you're gonna pay taxes every year, which is sometimes why I would refer to it as a taxable account. And then whenever you take the money out in the future, guess what? You don't pay taxes upon taking the money out.
• 4:02
  You really only pay taxes whenever you have dividends, interest, and capital gains. So, the the mechanism of the account type, how it actually works, is different from normal retirement accounts like IRAs and 401Ks, but this brings us to the first benefit of it that I really love. It's the flexibility. So with all of those other accounts, the 401ks, the IRAs, they all have different rules, things around how much you can contribute up to a certain maximum any given year or income limits that allow you to put money into a Roth or to make a tax deductible IRA contribution. All those different rules and restrictions are there.
• 4:42
  You've got distribution rules to worry about in ages and timings. With the Brokerage Account, guess what? You can take as much money out as you'd like at any point for any reason at any age. Also, can put as much money into that account as you want without limit. So you can invest as much money in a brokerage account and then take that money out as soon as you'd like.
• 5:03
  So there's no penalties for distributions. There's no age requirements to worry about. You don't have any contribution limits or maximums. And what ends up happening here is this gives you the flexibility, especially early in retirement, to make decisions that are most optimal for you. So perhaps you need to meet an ACA income limit.
• 5:22
  You're trying to keep your income low enough to get that subsidy on your health insurance. Being able to use something like cash in a savings account or investments or other things within this brokerage account, you can do so strategically so that you can keep your income low enough on paper. So number one, the flexibility of the brokerage account is one of my favorite benefits of it. There's minimal rules, there's minimal restrictions, and you get to use the money when and how you would like to. The second thing that I love about it is this rule really act as your bridge account, especially for those of you that are before 59.5.
• 5:58
  Let's say you're retiring at 53 or 56, and maybe you can use the rule of 55 if you've retired at 55 or older, but also you might be trying to qualify for those health insurance subsidies. And so you could be using this after tax brokerage account to supplement any other taxable income that you might have out of your four zero one ks. So, for example, let's say you've got a $40,000 income limit, modified adjusted gross income that you're trying to hit there for those ACA subsidies before, '65, and you can pull, let's say, $30,000 out of your four zero one ks under the rule of 55, but you need another $30,000 to meet your income or expense needs any given year, great. If you have got this brokerage account, you can use that as supplement to your distribution out of your four zero one k. So this is a bridge account.
• 6:49
  It helps you actually get from point a to point b and cover the gap until 59.5 so that you can access Roth dollars completely penalty free or access those traditional IRA dollars once you are at age 59.5 or older. It helps you get there without having to pay penalties or extra taxes along the way. Now, the third reason that I love a brokerage account is because it actually could be the same thing as a Roth IRA. Now, I want you to hear me out here. I've done episodes on this at length, and I've talked about this more on my YouTube channel, which, by the way, if you've not checked that out, you can go check it out.
• 7:27
  I'll have a link below for you to go watch some videos there where I do more case study kind of analysis and kind of see, hey, if I'm this age with this much money, what does my outlook look like there? You can go check those out. But one of my favorite opportunities with a brokerage account is something called tax gain harvesting. And the idea is this, it's intentionally selling gains within your brokerage account after those investments have made money. You're trying to sell those gains at the 0% long term capital gain bracket.
• 8:00
  Now you might think, hey, Jacob, I didn't even know there was a 0% tax bracket. Is that even possible? And the answer is yes. And in fact, if you wanna see it for yourself, I've got this data sheet, this important numbers data sheet here for 2026 that you can download and print out and just hold on your desk or somewhere there near you, and you can refer to that and use that throughout this year as you plan for your investments and plan out your different income strategies for this year and for your retirement. It's a great resource.
• 8:26
  I'd encourage you to download it. It's completely free. But on that document, what you'll see is you'll see there is a capital gains tax brackets. And those three different brackets, there's the 0% bracket, there's the 15% bracket, and then there is the 20% bracket. Each of those brackets are based on your taxable income.
• 8:46
  You'll see that noted there. Now what's interesting here in 2026 anyway, if you are married filing jointly, your capital gains brackets are actually very high. So if you look at this, the married filing jointly bracket, the 0% level there, it goes all the way up to $98,900 here in 2026. Now that's for your taxable income. So technically, you get to add your standard deduction or your itemized deductions if you itemize on top of that.
• 9:17
  So at a minimum, you get 98,900 of taxable income plus here in 2026, the married filing jointly standard deduction is 32,200. So if you add those two things together, I'm gonna do some rough math here, that's like a 131,100. Correct me if I'm wrong there. Somebody pause it, do the math, and let me see if I got it right in my head. But what you can do is a $131,000 of total income and actually pay no taxes on any capital gains that fall under that amount.
• 9:48
  So here's kind of how that works just in a maybe a real world scenario. Let's say that you're married filing jointly, and you've got $40,000 of income. And we've got a 130 let's just use 130 as a round number here. We've got a $130,000 of room before any capital gains that we could realize would actually be taxable. So we've got a $40,000 base of income that we're gonna have no matter what, and that includes maybe some interest there and some earned income.
• 10:15
  So we've got a 130. If we subtract the 40 out of that, that leaves us with $90,000 left of room for capital gains at that 0% bracket. So what you're able to do here is, let's say you've invested some money in this brokerage account, and you have the ability to then go sell the appreciated holdings and pay no tax on it, you just created a Roth IRA in essence by doing that. Right? And so this is an opportunity that the brokerage account allows that other accounts don't.
• 10:47
  You get to choose when and how you realize gains within the account, and then also what the tax rate could be there. So there's a lot of strategy and kind of maneuvering that you can do to make this possible for you. And what I want to say here is this, this is the federal tax brackets and the federal capital gains brackets that I'm talking about. So depending on your state, you could have capital gains taxes in your state, you could have no taxes on capital gains at all, or you could be taxed as normal income depending on where you live. So you have to pay attention to it at the state level, but at least at the federal level, these long term capital gain brackets, they could be very helpful as you plan out your income, especially early in retirement.
• 11:32
  Now, one side of it is tax gain harvesting, where you get to actually realize gains and pay no tax on those gains. The other side of the equation is tax loss harvesting, and this is number four. It's the opportunity that you could actually offset other gains that you've realized in other different accounts. Maybe you've sold a business or sold some sort of real estate, and you've got capital gains somewhere. If you've got losses in a brokerage account, you can use those losses to offset other gains to where they equal each other out, and you actually pay less tax overall.
• 12:04
  So that's tax loss harvesting, but we can take it a step further and actually carry forward any unused losses in perpetuity. Okay? So if we have, let's say, dollars 20,000 of losses, the market goes down, you lose some money, maybe you want to make a couple adjustments in your portfolio, and you've got this brokerage account, and so you realize $20,000 of losses here in 2026. Well, in 2027, you can carry forward all of those losses. And in 2027, let's say you've got $10,000 of capital gains.
• 12:36
  Well, you can use 10,000 of your 20,000 of losses to offset that. And now what you've got is, is you've got $10,000 actually left over in those losses that you can still carry forward into the future. And the cool part is this. Every single year, you can use up to $3,000 of any capital losses, like in a brokerage account, to offset normal income. Okay?
• 13:01
  So if no matter what, 3,000 can be used to offset normal income. So if you think about it, if you're at a, let's say, a $20,000, at 24%, that's $720 that you get to save just by having capital losses available to you. So tax loss harvesting can be a very helpful thing in terms of lowering your taxes year to year and or offsetting other capital gains that you might realize either this year or in the future. Now, number five is asset location. Okay.
• 13:34
  So whenever we have three different account types, we mentioned them earlier. We've got the, let's just say, the tax deferred IRA or four zero one ks, then we've got the Roth four zero one ks or IRA, and then this brokerage account. Think of it as kind of like three different buckets or like tax types, if you will. Each of those three different buckets, you probably don't want to be investing the same way. Okay, so each of those have different benefits and drawbacks, and there's reasons for that.
• 14:01
  And it really comes down to how the money inside of each of these three buckets is taxed. So if you think about it, if you've got a Roth IRA or a Roth four zero one ks, you would want that money to be as growth focused as possible, right, because it grows tax free. So you want that one to grow as much as possible. You'd probably not want to hold, you know, fixed income or different things that don't grow as much like cash in those in that Roth account. You want that one to be as aggressive as possible.
• 14:30
  And then you've got your taxable brokerage account, the one we're talking about here today, that one is paying taxes every single year, right? So if you've got a lot of interest being generated from a bond fund or from cash, that's a tax drag that could be happening there that you otherwise could have avoided. So if you're not needing income directly from that brokerage account just yet, what you can do is try to invest that in such a way that minimizes income or minimizes dividends and minimizes interest so that you can reduce how much tax you have to actually pay every single year. And then finally, you've got your your tax deferred IRA. If you do have fixed income within your portfolio, bonds, treasuries, things like that, that might be the place you want to hold them because that is tax sheltered, and regardless of the type of investments or gains you have in a traditional IRA or traditional four zero one ks, the only way that money is going to be taxed one day is as normal income whenever you take it out.
• 15:28
  So, you might want to align that more strategically. So that's asset location. This brokerage account we're talking about, that helps you kind of round out the tax deferred versus the Roth and that third bucket being taxable, the brokerage account. Having that there helps you be that much more optimized from an investment standpoint when it comes to minimizing taxes with asset location. So that's number five.
• 15:54
  Now, number six is liquidity. So having the access to your money, the ability to use it for what you want, when you want, how you want, especially early in retirement, for those of you 60 or even really 65, having this ability to generate maybe tax free income or minimal taxable income out of an account like this brokerage account without having to spend down too much of your Roth and without having to create a big tax burden from a distribution out of an IRA or a four zero one ks. This liquidity gives you the flexibility around your taxes, around your spending. It helps you access your money sooner. That way you can actually go and enjoy your go go years.
• 16:36
  So if you retire at, you know, 52 or 54, you're like, hey, I wanna go enjoy my time. If you don't have the ability to access money to go do that without a big tax burden or large penalties, then you're not going to enjoy it quite as much. Right? So if you've got this brokerage account, it helps you have liquidity, which means you have access to go spend and enjoy earlier in retirement. And the seventh and final benefit that I love about a brokerage account is actually the estate planning benefits.
• 17:05
  So what happens with a brokerage account upon your death is it goes to whoever's named as the beneficiary. It could be a trust or a person, it could be a spouse, a child, whoever. Whenever it does that, it receives what's called a step up in basis, much like real estate. So your home or any other real estate for that matter, you receive what's called a step up in basis. So for example, let's say you, bought Amazon stock twenty years ago when it was nothing, and now you still own Amazon stock and you want that to be for your kids or grandkids one day, great.
• 17:38
  This is not my endorsement to say go buy Amazon stock. I don't know if it's good or bad. Don't listen to me. But I'm just using an example. If you own that, you've got really large gains in it, and you might be thinking, well, I could start selling some of those gains via tax gain harvesting, paying no tax on that if I want to, if it's possible for my situation, I can start living on some of that.
• 17:58
  Now, you might have plenty of that left over, but the good news is if you do die with a lot of those gains in the brokerage account, whoever the heirs are, they will get an immediate step up in basis and will not have to pay any tax on the gains because they are in a brokerage account. Now, the same thing cannot be said for a tax deferred four zero one ks or IRA because again, those dollars are always going to be taxed as normal income and they have some pretty restrictive distribution rules there for heirs in the future. In fact, there's a 10 window that any beneficiaries of tax deferred or qualified accounts like that, they've got to take the money out. And whenever they do take that money out, they will be paying tax at normal income rates. So this is a powerful estate planning tool.
• 18:48
  So if you're thinking, Hey, I want to leave my kids or grandkids or somebody some money one day, the type of account and the type of money you leave them actually is crucial, and that will actually impact which accounts you decide to live on and pull from today. So either way, these seven benefits, having the options, the flexibility, the ability to make decisions around your income and maneuver things in such a way that minimizes your taxes, helps you qualify for those subsidies, helps you enjoy your money that much sooner early in retirement, but also gives you the flexibility around how you leave your assets to the next generation. This is why I love the brokerage account. So here's the recommendation for you. If you don't have one of these already, I would highly consider evaluating.
• 19:35
  Is it right for me to start funding a brokerage account, investing some money there on top of my four zero one ks, on top of my Roth? How do I start doing that? That's the first question you've got to ask yourself. And if you've already started doing that, continue doing so, but then think, as you get closer to retirement, are the investments within my brokerage account actually positioned in a way that they're usable in the first few years? Are they structured and ready to go so that I can make the most of them once I get there?
• 20:04
  So this is the type of planning and things that we like to think about with our clients. And if you're like, hey, Jacob, I hear what you're saying, but I don't know how to make sense of it or how it actually fits into my plan, I'd encourage you to reach out and see if we might be a good fit to help you build out your retirement plan and also help you execute it along the way. So hope this was helpful. Share it with a friend if it was, and if you feel led, please leave a rating and review there on Apple Podcasts and Spotify. It helps other people just like you find the show and benefit from these same ideas and conversations.
• 20:33
  Other than that, thank you so much for tuning in to this week's episode. We'll see you again very soon. Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning in to this week's episode.
• 20:53
  I look forward to talking with you again next week.