What Is A Brokerage Account?
A brokerage account is a “non-retirement” account with no contribution limits, no income limits, and no penalty for taking money out before age 59 and a half. It can go by many names: individual account, joint account, gap account, bridge account, non-retirement account, cash account, business account, or margin account, to name a few. It will never be the advice from a Whitaker-Myers Wealth Managers SmartVestor Pro to borrow money from a bank to invest, so please be very careful about opening or using a margin account.
What Can a Brokerage Account Be Used For?
A brokerage account can be used for anything. Want to save for a vehicle over the next five years and allow that money to work for you? Dollar-cost average your money into a brokerage account and invest it as conservatively or as risky as you would like! Want to put your emergency fund to better use? Move it over into a brokerage account, and one of our SmartVestor Pros will invest it into the Schwab Money Market, which is currently yielding about 5.26% as of 11/13/2023. Want to save for a down payment on a house? Talk to your local SmartVestor Pro to go over your options.
What Are the Tax Implications of Using a Brokerage Account?
Brokerage accounts do not have the tax benefits your traditional 401(K) or a Roth IRA has. When it comes to a brokerage account, you have short-term capital gains/losses and long-term capital gains/losses.
A short-term capital gain is when you sell the position within one year of holding it, and there is a gain. A short-term capital gain is taxed at your ordinary income tax rate. Here are the 2023 ordinary income rates:
A long-term capital gain is when you sell the position after holding it longer than one year, and there is a gain. Here are the long-term capital gains tax brackets for 2023:
If you have any tax questions, please get in touch with our Tax ELP, Kage Rush.
When Should I Open a Brokerage Account?
When you’ve maxed out your employer-sponsored retirement account(s) and your Roth IRA(s)
When you are looking to invest more than 15% of your income (Baby Steps)
When you want to retire early and avoid early withdrawal penalties
When you have a long-term savings goal and want to make your money work for you
This would be using it for a sinking fund to save for things such as:
Down payment for a house
A new (to you) car
What Is the Difference Between Retirement Accounts and Brokerage Accounts?
Source: Ramsey Solutions
Want To Open a Brokerage Account?
Talk to your local SmartVestor Pro. Our team of advisors is happy to walk through any questions you may have and help guide you through your investing process.