What about brokerage accounts?

Flexibility helps if funds needed before retirement

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 591⁄ 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.