Question: Are there circumstances where investing in a taxable brokerage account could make more sense than investing in a retirement account?
Answer: Tax-advantaged accounts are an excellent way to invest and build your retirement nest egg, but there are some cases where you may want to invest in a standard (taxable) brokerage account instead.
The most obvious is if you anticipate needing the money before you reach the penalty-free retirement account withdrawal age, which is 59½ in most cases. One good example of this is if you hope to retire early and want access to your money before you reach this age – after all, the last thing you want to worry about when you retire is getting hit with a 10 percent early withdrawal penalty from the IRS.
Also, if you want to be able to withdraw from your account when unforeseen expenses arise, a taxable account could be a smart idea. Tapping in to your investments for car repairs or medical expenses is bad enough without being penalized.
Finally, another situation in which you may want to consider a standard brokerage account is if the tax benefits of retirement investing won’t help you all that much with a certain investment. For example, if you plan to buy tax-free municipal bonds, it’s difficult to justify holding them in an IRA.
More: Should I wait out the market’s volatility? Ask a Fool
More: I contributed too much to my IRA last year — now what? Ask a Fool
More: What are the best stocks for my IRA that maximize its tax advantages? Ask a Fool
The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
Offer from the Motley Fool: Offer from The Motley Fool: The 10 best stocks to buy now
Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the SP 500!*
Tom and David just revealed their 10 top stock picks for investors to buy right now.
Click here to get access to the full list!
*Stock Advisor returns as of Aug. 6, 2018.