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I have a taxable brokerage account for a few reasons, including that I want to invest more than I can put into tax-advantaged accounts. Find out more. 

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I have many different kinds of financial accounts. One of those is a taxable brokerage account. It’s an account I opened at a discount online brokerage firm. Unlike many of my other accounts, there are no tax benefits to investing in it. But I still contribute money to it regularly.

Here’s why I’ve opened up a taxable brokerage account.

1. I’ve maxed out of my tax-advantaged accounts and still want to invest more

The biggest reason why I have a taxable brokerage account is because I have maxed out the contributions I am allowed to make to tax-advantaged accounts and I still want to contribute more money.

See, there are limits on how much you can contribute to accounts that come with tax breaks. In 2023, you can only contribute $6,500 in total to a traditional or Roth IRA or $7,500 if you’re 50 years old or over. If you have access to a workplace 401(k) (which I don’t), you can contribute a maximum of $22,500 or $30,000 if you’re 50 or over.

It’s worth maxing out these accounts first before investing in a taxable account if you’re saving for retirement since there’s no reason not to let the government subsidize your savings. But you don’t have to stop investing just because you hit the limits. Putting extra money into a taxable brokerage account can allow you to make even more of your money work for you.

Since I want to take advantage of compound growth as much as I can, I’m happy to put extra funds into a taxable account once I’ve finished making my investments in tax-advantaged accounts for the year.

2. I want an account that has fewer restrictions than tax-advantaged accounts

There’s another big reason why I have a taxable brokerage account: I want to be able to invest some money into an account that doesn’t have as many restrictions as tax-advantaged retirement accounts do.

In most cases, if you take money out of a 401(k) or IRA before age 59 1/2, you could owe penalties on the withdrawals you make. These penalties could be substantial. You are also required to begin taking required minimum distributions from many tax-advantaged accounts once you reach a certain age, which means the government tells you when to make withdrawals.

I may want to retire earlier than 59 1/2 and access some of my invested funds so I don’t have to live off my bank account alone. And I may have some money I want to just leave in a brokerage account to pass on to my kids, rather than being forced to withdraw money on a schedule that doesn’t work for me.

A taxable brokerage account gives me a place to invest money that comes with a ton more flexibility. Taking advantage of that simply makes sense for me.

RELATED: Best Online Stock Brokers for Beginners

The good news is, anyone can open a taxable brokerage account — you don’t need an employer to do it for you. And there are many great online brokers that provide free accounts. So, if you’ve maxed out your tax-advantaged retirement plans, why not consider opening one of your own to put some of your money into so it can start working for you.

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