Retire With Ryan
How To Make Your Brokerage Account Work Like A Roth IRA, #310
Why It Matters
Understanding how to leverage a taxable brokerage account for tax‑free growth expands retirement planning options beyond Roth IRAs, especially for those who exceed contribution limits or need more liquidity. This strategy is timely as tax rates and income thresholds are shifting, and many investors are seeking ways to minimize taxes while preserving flexibility for withdrawals and estate planning.
Key Takeaways
- •Taxable brokerage can achieve 0% capital gains under income limits
- •Choose growth stocks or low‑dividend ETFs to defer taxes
- •Avoid mutual funds; they generate annual capital‑gain distributions
- •Use standard and senior deductions to stay in 0% bracket
- •Brokerage accounts allow borrowing and step‑up basis after death
Pulse Analysis
In this episode Ryan Morrissey contrasts the popular Roth IRA with a plain taxable brokerage account, highlighting why many investors overlook the latter’s tax potential. While Roth contributions are made with after‑tax dollars and grow completely tax‑free, they impose age and five‑year holding rules, prohibit borrowing, and force a ten‑year liquidation window for non‑spouse heirs. Those constraints can limit flexibility for retirees who need earlier access to cash or want to leverage their portfolio. By understanding the mechanics of a non‑qualified brokerage account, investors can replicate many Roth advantages without the same restrictions.
Morrissey explains how to keep capital gains at 0% by staying inside the 12% ordinary‑income bracket. For single filers the combined taxable income—including long‑term gains—must stay below roughly $50,400 in 2026; married couples can double that amount. Leveraging the standard deduction ($16,100 single, $32,200 joint) and the senior deduction for those over 65 further expands the zero‑rate window. Selecting growth‑oriented stocks or low‑dividend ETFs, such as a 1%‑yield S&P 500 fund, defers taxable income because unrealized gains aren’t taxed and dividends are minimal. Conversely, open‑end mutual funds often distribute capital gains each year, eroding returns.
Beyond tax avoidance, taxable accounts provide additional flexibility: investors can borrow against securities without triggering a taxable event, and upon death the holdings receive a step‑up in basis, eliminating future capital‑gain liability for heirs. This contrasts with Roth IRAs, which must be emptied within ten years after the owner’s death, potentially forcing taxable distributions. By combining low‑dividend ETFs, careful income planning, and strategic withdrawals, retirees can mimic Roth‑style tax efficiency while preserving access to funds and borrowing power. Morrissey advises consulting a fiduciary advisor to tailor these tactics to individual situations and to stay compliant with evolving tax laws.
Episode Description
When it comes to planning for retirement, Roth IRAs have gained widespread attention for their tax-advantaged status and the promise of tax-free withdrawals in retirement. Financial experts, YouTubers, and podcasters have been touting the benefits of contributing to or converting assets into Roth accounts for years. But an often-overlooked vehicle could empower you to manage your investments just as efficiently: the humble taxable brokerage account. Surprisingly, with the right strategy, you can even pay 0% capital gains tax, mirroring one of the biggest appeals of a Roth.
You will want to hear this episode if you are interested in...
00:00 Overlooked benefits of after-tax brokerage accounts
02:29 Limitations of the Roth IRA
06:20 Tax implications of brokerage accounts
07:57 Tax benefits of growth stocks
13:14 Understanding Tax Brackets and Deductions
16:53 Inheritance rules for IRAs vs. brokerage accounts
17:44 Managing taxable brokerage accounts
Understanding Taxable Brokerage Accounts
A taxable brokerage account lets you invest in virtually anything: stocks, mutual funds, bonds, ETFs, and more. These accounts, however, are often dismissed when compared to their tax-advantaged counterparts because:
Annual Taxation: Every year, you pay tax on dividends, interest, and any realized gains.
Ordinary Income Tax on Short-Term Gains and Interest: Holdings sold within one year and earned interest are taxed at your regular income rate.
Potential for Long-Term Capital Gains Tax: Sales after more than one year are taxed at the long-term capital gains rate, which is typically lower.
When used strategically, they offer flexibility and powerful tax advantages.
Making Your Brokerage Account Behave Like a Roth
The key to unlocking Roth-like benefits is understanding how and when taxes apply—and how to minimize them. Invest strategically and focus on growth over dividends. Choose investments that don't pay dividends, such as growth stocks or low-dividend index funds. No dividends mean no annual income to be taxed because gains are only taxed when you sell.
You can also use Index Funds and ETFs, which usually distribute minimal dividends and capital gains, keeping annual taxes low. Avoid open-end mutual funds in taxable accounts, as they tend to generate capital gains every year, eroding long-term growth with recurring taxes.
Realizing 0% Capital Gains
If your total taxable income (after deductions) stays within the 12% tax bracket—a figure that for 2026 is $50,400 for singles and $108,800 for married couples file jointly—you can sell appreciated assets and owe 0% in federal capital gains tax. It's wise to time withdrawals, plan major sales during years with little other income—such as early retirement or a gap year—to fall within the 0% bracket. Keep an eye on your other sources of income: IRA withdrawals, Social Security, and pensions count toward taxable income, potentially bumping gains into the taxable range.
Estate Planning Advantages
Taxable accounts also offer:
Ability to Borrow: Take loans against your investments without triggering taxable events
Step-Up in Cost Basis: Heirs inherit assets at their market value on your death, often eliminating capital gains on past appreciation—a feature that Roths don't fully replicate.
By understanding how to structure and manage your taxable brokerage account, you can access strategic flexibility—not just in managing withdrawals, but in transferring wealth to future generations. The "secret" is simply knowing and applying the rules, with tax-aware investing and withdrawal strategies smoothing the way for potentially tax-free wealth growth and transfer.
Resources Mentioned
Retirement Readiness Review
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Connect With Morrissey Wealth Management
www.MorrisseyWealthManagement.com/contact
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