12 Sep How Is a Brokerage Account Different from a Retirement Account?
Through our work with clients as CERTIFIED FINANCIAL PLANNER™ professionals in Roseville, CA, we often hear the question “How is a brokerage account different than a retirement account?”
While a retirement account is technically a brokerage account, not all brokerage accounts are retirement accounts. It’s best to think of them as two different types of investment accounts.
Two Types of Investment Accounts
A brokerage account is a taxable investment account that you set up (with the help of a financial advisor or online brokerage firm) to buy and sell investments based on your financial goals. You can sell and buy stocks, mutual funds, exchange-traded funds (ETFs), and many other types of investments. Selling those securities will results in capital gains taxes, and you could face other taxes, such as on your dividends.
In contrast, a retirement account is a specific type of investment account where you can also invest in a wide range of assets, but the accounts have benefits and features to help you save for retirement. Generally speaking, these accounts help you minimize income taxes by either:
- Deferring taxes on the money you invest until you make withdrawals from the account
- Paying taxes on the money you invest now and having that capital grow and be eligible for tax-free distributions in retirement
Because retirement plans such as individual retirement accounts (IRAs) and 401(k) plans are tax-advantaged, there are also specific rules related to how much you can contribute and when you can withdraw money.
Both brokerage accounts and retirement accounts have their merits, and deciding how to allocate to different accounts depends on factors such as your current and future expected tax bracket and the amount of money you want to save each year.
Working with a fiduciary financial advisor can help you determine how to structure your investments based on your goals and preferences.
Schedule a complimentary, 15-minute call with a fee-only financial advisor today to discuss your personal situation.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.