Brokerage Account vs. 401(k): Why You May Want Both

October 3, 2025

Trying to decide where to put your money? If you have a 401(k) through your employer, you're hopefully on your way to building a tidy retirement nest egg.

But retirement may not be your only goal in life. If you want to save and invest for nonretirement goals, build emergency savings, or try to get higher yields on your cash, a brokerage account may be what you're looking for.

Benefits of having a taxable brokerage account and a 401(k)

Brokerage accounts can make sense for short or long-term money goals and for savers and investors alike. Even if you never plan to buy stocks or trade, brokerage accounts may be for you.

Wide range of investments

Brokerage accounts give you access to a universe of investments, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit, and money market funds. Plus, brokerage accounts offer the ability to use margin and trade options, if you qualify.

You can use complicated strategies in brokerage accounts or keep it simple—from advanced options trading to saving in money market funds.

Flexibility

The flexibility of brokerage accounts means they can be used for a variety of goals. Joint accounts are also an option if you want to pool your money to invest with another person, or even several more people.

Financial goal examples:

●     Making a major purchase like a home, a car, a vacation, etc.

●     Emergency savings

●     Building wealth

●     Saving for retirement (after you've maxed out tax-advantaged savings options)

The opportunity to use investment and trading strategies like tax-loss harvesting and asset location could complement your long-term retirement plan.

No contribution limits or barriers to withdrawal

There are also no contribution limits or caps on the amount of money you can put in the account. The money can be withdrawn anytime, as long as you have uninvested cash available. At Fidelity, you can even get a debit card linked to your brokerage account.

Tax diversification

Using a taxable account in addition to your 401(k) can help diversify your tax strategies. Because you can take money out anytime, money saved in brokerage accounts can help early retirees bridge the gap to age 59½ when qualified distributions from retirement accounts typically begin.

Investing outside of a 401(k)

Getting started with a brokerage account is easy.

Decide how much to invest. You can fund the account with one lump sum or several contributions over time. Setting up direct deposit or scheduling automatic transfers from a bank, brokerage, or savings account can help ensure a regular saving schedule you don't have to think about.

The good news is that you don't need a lot of money to start investing outside your 401(k). Accessible exchange-traded funds (ETFs) and even mutual funds with no investment minimum have proliferated in recent years in addition to the ability to trade fractional shares. You can buy part of a stock or ETF for as little as a dollar at Fidelity.

Pick investments. Choosing investments can be overwhelming for some people, particularly if you're used to picking investments from a limited menu as is often the case in a 401(k).

Brokerage accounts vs. 401(k)s: Taxes

Unlike 401(k)s, brokerage accounts are taxable. Selling investments can result in capital gains (or losses). Gains from the sale of an investment held for less than a year and one day are taxed at your current federal income tax rate.

Gains from the sale of an investment held for a year and one day or longer get a lower tax rate—the long-term capital gains rate, which ranges from 0% to 20%. There are ways to lower a potential tax bill; in a brokerage account you can offset investment gains with investment losses.

Investing in mutual funds and exchange-traded funds can also have tax implications. Receiving investment earnings in the form of interest, dividends, or distributions can be a taxable event.

When you contribute to your 401(k), you're agreeing to leave the money in the account until age 59½. If you don't, you may have to pay taxes on withdrawals plus a 10% penalty.

Funding and investing

Your 401(k) is funded through payroll deductions. At enrollment, you choose how much to contribute and which investments to buy.

With a brokerage account, you're in charge of the investments and have access to thousands of choices. With that comes responsibility—you'll need to place trades to move any cash in the account into your chosen investments.

As mentioned earlier there are digital tools that can help narrow down your investment options. Once you've chosen investments, you can automate your contributions and investments, so they keep happening at a regular cadence.

Estate planning

Finally, one more way that brokerage accounts and 401(k)s differ: inheritance. Some investments held in a taxable brokerage account are eligible for a step-up in cost basis when the account owner dies. That can help your heirs save on taxes so it can make sense to consider when thinking about your overall estate planning.

Think about your full financial picture

Before leaping into the brokerage world, take a step back and review your full financial circumstances. In general, for retirement goals, consider saving as much as possible in a 401(k), 403(b), or other tax-advantaged accounts before turning to taxable brokerage accounts.

The potential tax benefits of specialized accounts may be one of the best deals around so it can make sense to make the most of them—when appropriate within the context of your plan. Other tax-advantaged accounts include health savings accounts, IRAs, 529 college savings plans, and tax-deferred annuities.

Saving on a tax-free or tax-deferred basis avoids the drag on returns that annual taxes can create in a taxable brokerage account. Since no money needs to be taken out of a retirement account to pay taxes, money can stay invested and potentially compounding for decades.

Another tool in your financial toolbox

Brokerage accounts can be used in a variety of ways for a variety of goals. Whether you're planning to trade, investing for the long term, building emergency savings, or even just managing cash, a brokerage account could be a good fit.

Sources:

https://www.fidelity.com/learning-center/trading-investing/taxable-brokerage-account

Disclosure:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.