The most slept on account in personal finance.
The brokerage account has many more features than meet the eye.
I’m pretty active on X and LinkedIn and people who are leaders in the financial planning space love to cover the advantages of accounts such as Roth IRAs, HSAs, and 401(k)s or 403(b)s.
These accounts can be extremely useful when saving for retirement. They’re tax-advantaged and in my professional experience, I have seen people use them to grow their net worth well into the 7-figures.
But this week, we’re talking about the classic brokerage account. In my opinion, this is one of the most slept-on accounts in personal finance.
When it comes to taxable brokerage accounts, there is more than meets the eye. I absolutely love them for young professionals.
Here are my favorite aspects of the taxable brokerage account:
Flexibility: Unlike a 401(k), HSA, or Roth IRA, the taxable brokerage account plays by no age-based distribution rules. There is nothing stopping you from removing the funds from the account at any time.
This makes for a great savings vehicle for shorter-term time horizons. Something that comes to mind is a home purchase.
For younger professionals with a time horizon of 7-20 years, the taxable brokerage account can be a much better place to save and invest compared to a retirement account.
Maxing out your 401(k) is awesome and you’ll be super happy come retirement, but that is not going to offer much help when it comes time to purchase a home or assist in any other short-term goals.
Tax-Loss Harvesting: This is one of the biggest advantages of the brokerage account. While there may not be any Roth or pre-tax contribution component, you do have the ability to harvest your losses.
Tax-loss harvesting can be a huge value add over the course of someone’s investment career. Essentially, realized losses can be used to offset realized gains. Short-term capital losses are used to offset short-term capital gains, long-term losses are used to offset long-term gains and then any remaining losses can offset either type of gain.
On top of that, each year, you may use $3,000 of your losses against your ordinary income.
This is huge, especially when it comes to short-term capital gains, which are taxed according to your marginal tax bracket.
Down years in the market are inevitable. Tax-loss harvesting allows you to make lemonade.
A down year in the market doesn’t offer any advantages to your 401(k) or Roth IRA. (Other than the opportunity to buy the dip).
Favorable tax treatment: If your investments are held for more than 1-year, you are eligible for long-term capital gains treatment.
This is yet another subtle tax advantage offered by the brokerage account. The tax rates for long-term capital gains range from 0%, 15% or 20%.
There is a potential additional tax levied on high earners which is the Net Investment Income Tax coming in at an additional 3.8% but we’re not going to get into that right now.
In 2025, married couples with taxable income below $96,700 will pay 0% on their capital gains.
With a standard deduction of $30,000, if a couple had no other income, they could theoretically realize $127,000 in capital gains and still be eligible for the 0% long-term capital gains rate.
Securities-backed lines of credit
You might be familiar with the idea of “buy, borrow, die”. SBLOCs allow people to collateralize their brokerage account and access immediate liquidity.
This is very similar to a home equity line of credit. You don’t necessarily want to sell your home to access liquidity, so you borrow against the equity you’ve built up.
The same works for brokerage accounts! This is a phenomenal way to get access to liquidity, especially if you hold very low-basis stock and do not want to pay your tax bill on those shares just yet.
Your 401(k)s allow for loans as well but they are capped at a maximum of $50,000.
The SBLOC is just another tool in the belt of the brokerage account.
Step-up in basis
When your heirs inherit a Roth IRA, Traditional IRA, or 401(k), there is a schedule they must follow until the account is drained. For the time being, we are waiting to fully understand the schedule, but we do know the account must be drained within 10-years of the decedent’s passing.
This is not the case for brokerage accounts. Inherited brokerage accounts actually get a step-up in their basis.
Let’s say someone left you shares of Apple that they had purchased for $1. Obviously, had they realized the gains there could have been massive tax implications. But as you inherit the shares, their basis is stepped up to the value on the previous owners’ day of death.
Absolutely massive for generational wealth transfers.
That is about all for today. While tax-advantaged accounts have some awesome features, the standard brokerage is much more intricate than most may realize.
There are some serious value adds when you understand the features of a taxable brokerage account.