Why I Have 3 Different Brokerage Accounts

Could multiple accounts make sense for you too?

When you open an account with a brokerage firm, you'll have to decide what type makes sense for you. There are many options, including taxable accounts, Roth IRAs, rollover IRAs, and traditional IRAs.

The good news is, you can have many different accounts, so you can develop a good mix that makes sense for your needs. For example, I have three different accounts with my discount broker.

Here are the three account types I have open -- and some details on why I chose each one.

1. A taxable account

A taxable brokerage account makes up one of the three accounts I have with my brokerage firm. I've chosen to put some money into an account that doesn't have tax advantages because it provides me with more flexibility.

I can trade on margin in the account if I want to, which means I can leverage my money. My broker doesn't allow that for IRAs.

Another big benefit of my taxable account is that I won't need to wait until I'm 59 ½ in order to be eligible to withdraw the funds in the account -- which isn't the case with my tax-advantaged retirement accounts. Since I'm investing for other things besides retirement and since there's a chance I'll retire before I reach that age, it's important to me to have an account where I can access money early without incurring a penalty.

2. A Roth IRA

I've opened a Roth IRA with my brokerage firm because this account provides me with some tax breaks that help make it easier to save for retirement. Roth IRAs don't provide a tax break for up-front contributions like traditional IRAs do. But, they will allow me to withdraw money tax free as a retiree.

I'm convinced that my tax rate will only increase as I get older and enter my retirement years, as I don't think the federal government can sustain the current levels of taxation. They remain low by historical standards, and low taxes combined with spending have left the country facing a large amount of debt. Since I think taxes will be higher in the future, I'd rather defer my tax savings until later rather than claim a tax break for investment account contributions right now.

By investing in a Roth IRA, I can also avoid having my withdrawals potentially make my Social Security benefits taxable. That can happen once "provisional" income reaches too high. Provisional income is a special measure of income used to determine if Social Security benefits can be taxed, and Roth IRA distributions don't count when provisional income is calculated. That means no matter how much I take out of this account in my later years, I won't have to worry about ending up with taxable Social Security because of my distributions.

Finally, Roth IRAs don't require me to begin taking money out on a schedule determined by the government. Other kinds of tax-advantaged accounts, such as 401(k)s and traditional IRAs, do. With these other accounts, seniors must begin making required minimum distributions starting at age 72. I don't want to have to take money out of my accounts that I don't need just because the rules say I have to.

3. A Rollover IRA

Finally, I have a rollover IRA. I opened it because I had some old 401(k)s from past workplaces, and I wanted to move them into a brokerage account I controlled. I couldn't move them into my Roth IRA because rolling over a traditional 401(k) into a Roth account is a taxable event, and I didn't want a huge tax bill for the money I rolled over.

As you can see, each of these accounts serves different and important purposes. If you have differing goals for your investment dollars, don't be afraid to open different brokerage accounts of your own.