3 Reasons I Have a Taxable Brokerage Account -- Not Just Retirement Accounts

Should you also have a taxable account too?

I believe investing is the key to building wealth. I also want to maximize the tax breaks that are available to me for investing for retirement so I can get help from Uncle Sam in securing my future. As a result, I've invested in several tax-advantaged retirement plans.

But despite the fact I have multiple retirement accounts open, I also have a standard taxable brokerage account as well.

There are a few key reasons why I've opened this kind of account and put money into it -- even though it doesn't offer the tax benefits my retirement accounts offer. Here are three of them.

1. I may need to withdraw the money before retirement age

One of the biggest reasons why I put a substantial amount of money into a taxable brokerage account is because I anticipate I will need to withdraw some of it before I reach retirement age. I may want to use the money to cover schooling costs for my children, for example, or if I decide to retire early.

If I invested in a tax-advantaged retirement account alone, I would be subject to strict rules on withdrawals that apply to these types of accounts. Typically, this would mean I'd incur a 10% penalty if I took my money out before reaching age 59 1/2.

I want to make sure I'm not tying up all my cash in an account I can't access without incurring penalties, and I believe investing in a taxable brokerage account is the best way to do that.

2. There's a limit on tax-advantaged contributions

Another big reason why I've opted to put money into a taxable brokerage account is because there are limits on the amount I can contribute to tax-advantaged plans.

The specific limits vary by account, but there have been many years when I've maxed out my deductible contributions and still had more to invest. In these situations, a taxable account is the best option I have for being able to buy assets that can help me earn returns and build wealth.

3. I want a broader array of options

Finally, the last big reason why I have a taxable brokerage account is because it provides me with more flexibility.

There are a number of different brokerage firms that only offer access to taxable accounts or that charge a fee for using tax-advantaged retirement plans. By keeping some money in an account that doesn't come with tax-advantages, I can choose to invest with one of these financial institutions if I want to.

I also have the option to use margin to expand my leverage if I choose to do so, which hasn't been an option with the retirement accounts I've opened in the past. While I haven't chosen to do this yet, I don't want to close off this investing technique as a possibility.

Anyone who is investing for the future should take the time to consider what accounts are right for them. If you've earned your employer match on a 401(k) and have additional cash left to invest, you also may want to think about putting at least a little bit of it into a taxable account if any of these reasons apply to you as well.