Open a taxable account after maxing tax-advantaged options — no contribution limits, maximum flexibility Hold low-turnover index ETFs and muni bonds here; put REITs and high-yield bonds in your IRA Tax-loss harvest during downturns — the losses are real and valuable even when temporary Never let taxes stop you from making the right investment decision, but always consider after-tax returns The step-up in basis at death makes appreciated taxable assets powerful for estate and charitable planning

Taxable Brokerage Accounts: When and How to Use Them

Curated by: Rubric Advisors

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What a Taxable Account Is

No contribution limits, no income restrictions, no early withdrawal penalties — money goes in and comes out freely
Unlike a 401(k) or IRA, there's no upfront deduction and no tax-deferred growth — gains are taxed as earned
Long-term gains (held over 12 months) are taxed at 0%, 15%, or 20% — much lower than ordinary income rates
Short-term gains (held under 12 months) are taxed at ordinary income rates — up to 37% federally
The tax disadvantage vs. a 401(k) is real but manageable — smart investing still builds substantial wealth

The Priority Ladder: When to Open a Taxable Account

First: capture full employer 401(k) match — a 50-100% instant return that nothing else beats
Second: max an HSA if eligible — triple tax advantage makes it the most efficient account available
Third: max your Roth or Traditional IRA ($7,000/year in 2025-2026; $8,000 if 50+)
Fourth: max the full 401(k) contribution ($23,500 in 2025; $31,000 if 50+; check IRS.gov for current limits)
Fifth: if you still have investable income after the above, open a taxable brokerage account

What to Hold in a Taxable Account (Asset Location)

Broad-market index ETFs: low turnover, minimal gains distributions, and tax-loss harvesting opportunities
Municipal bonds: interest is federal-tax-exempt — most valuable in high brackets where after-tax yield beats taxable
Avoid holding here: REITs, high-yield bonds, and active funds with high turnover and frequent distributions
Hold REITs, high-yield bonds, and active funds in tax-advantaged accounts instead
International equity funds may generate a foreign tax credit — useful in taxable, not in tax-advantaged accounts

Tax-Loss Harvesting in a Taxable Account

When a position drops below your cost, selling it 'harvests' a loss you can use to offset gains
Buy a similar (not identical) fund right away to stay invested — you just change the wrapper
Losses offset gains dollar for dollar; excess losses offset up to $3,000 of ordinary income and carry forward
Avoid the wash-sale rule: don't buy back the same or 'substantially identical' security within 30 days
Tax-loss harvesting doesn't improve pre-tax returns but materially improves after-tax returns

The Step-Up in Basis at Death

At death, taxable account assets get a 'step-up in basis' — heirs inherit at fair market value, erasing all gains
Decades of unrealized capital gains are permanently erased — never taxed to the owner or the heirs
This makes highly appreciated taxable assets valuable estate planning tools — sometimes better to leave to heirs
Donate highly appreciated shares to charity instead — you get a full deduction and no capital gains tax
Best strategy: donate your most appreciated shares to charity; leave assets with smaller gains to heirs

Key Takeaways

Open a taxable account after maxing tax-advantaged options — no contribution limits, maximum flexibility
Hold low-turnover index ETFs and muni bonds here; put REITs and high-yield bonds in your IRA
Tax-loss harvest during downturns — the losses are real and valuable even when temporary
Never let taxes stop you from making the right investment decision, but always consider after-tax returns
The step-up in basis at death makes appreciated taxable assets powerful for estate and charitable planning

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What a Taxable Account Is

The Priority Ladder: When to Open a Taxable Account

What to Hold in a Taxable Account (Asset Location)

Tax-Loss Harvesting in a Taxable Account

The Step-Up in Basis at Death

Key Takeaways

Related Topics

Step-Up in Basis

Exchange Funds

Mutual Fund Distributions and Tax Surprises

What a Taxable Account Is

The Priority Ladder: When to Open a Taxable Account

What to Hold in a Taxable Account (Asset Location)

Tax-Loss Harvesting in a Taxable Account

The Step-Up in Basis at Death

Key Takeaways

Related Topics

Step-Up in Basis

Exchange Funds

Mutual Fund Distributions and Tax Surprises