Direct Answer
A taxable brokerage account holds securities and cash with no annual contribution limits, no withdrawal penalties and no income restrictions. Dividends and realized capital gains are taxed in the year received or realized. Unlike tax-advantaged accounts, there is no upfront tax deduction, but the account offers full flexibility with no age-based access rules.
Taxable Brokerage Account Profile: Rules and Tax Treatment
What is a Taxable Brokerage Account?
A taxable brokerage account (also called an individual account, standard brokerage account, or non-retirement account) is a securities account at a registered broker-dealer. The investor opens the account in their own name and can hold a wide range of investments: stocks, bonds, ETFs, mutual funds, options, futures, REITs, and others depending on the broker's offering.
Unlike retirement accounts, there are no contribution limits, no employer sponsorship requirements, no age restrictions, and no penalties for withdrawing at any time. The trade-off is that all investment income (dividends, interest, capital gains) is generally taxable in the year it is earned or realized.
SIPC insurance protects cash and securities in the event of broker failure, up to $500,000 per customer (including up to $250,000 in cash). SIPC does not protect against investment losses due to market movements.
Tax Treatment
Capital gains
| Holding Period | Tax Rate (Federal) |
|---|---|
| 12 months or less (short-term) | Ordinary income rates (up to 37%) |
| More than 12 months (long-term) | 0%, 15% or 20% (based on taxable income) |
An additional 3.8% net investment income tax (NIIT) applies to net investment income for taxpayers above MAGI thresholds ($200,000 single; $250,000 MFJ; $125,000 MFS).
Dividends
- Qualified dividends: From U.S. corporations and qualifying foreign corporations, held for required holding periods. Taxed at long-term capital gains rates (0%/15%/20%).
- Ordinary (nonqualified) dividends: REITs, certain foreign dividends, and dividends not meeting holding-period requirements. Taxed at ordinary income rates.
Interest income
Bond interest, bank interest and money market interest is generally taxed as ordinary income. U.S. Treasury interest is exempt from state and local income tax (but not federal). Municipal bond interest is generally exempt from federal income tax and may be exempt from state tax if issued in your state of residence.
Wash Sale Rule
The wash sale rule (IRC Section 1091) disallows a capital loss if you buy the same or substantially identical security within the 61-day window centered on the sale date (30 days before or after). The disallowed loss is added to the basis of the replacement security rather than being permanently lost.
Substantially identical securities include the same stock, the same bond series, or mutual funds and ETFs that track the exact same index. Moving from one S&P 500 ETF to a different but similar S&P 500 ETF from a different provider occupies a gray area; funds tracking different indexes (even similar ones) are generally not substantially identical.
The wash sale rule applies per investor (including across IRAs held by the same person, per IRS Notice 2008-5), not per account. A loss in a taxable account disallowed by a repurchase in an IRA is permanently lost, not deferred, because IRAs do not track cost basis the same way.
Step-Up in Basis at Death
Assets held in a taxable brokerage account at the time of the owner's death receive a "step-up in basis" (IRC Section 1014) to the fair market value on the date of death (or the alternate valuation date, if elected). This eliminates embedded capital gains that accumulated during the owner's lifetime, making taxable brokerage accounts a powerful estate-planning vehicle for appreciated assets held long-term.
Assets held in traditional or Roth IRAs, 401(k)s, and most other retirement accounts do not receive a step-up in basis; distributions from pre-tax accounts are fully taxable, and the basis issue is handled differently.
Frequently Asked Questions
- Is there a contribution limit for a taxable brokerage account?
- No. Taxable brokerage accounts have no annual contribution limit. You can deposit any amount of cash or transfer in securities at any time. There are also no income limits, no age restrictions and no earned-income requirements.
- How are taxable brokerage account gains taxed?
- Short-term capital gains (assets held one year or less) are taxed at ordinary income rates (up to 37% federal for 2026). Long-term capital gains (assets held more than one year) are taxed at 0%, 15% or 20% depending on taxable income. An additional 3.8% NIIT applies above MAGI thresholds. Qualified dividends receive long-term capital gains rates; ordinary dividends are taxed at ordinary income rates.
- What is the wash sale rule?
- The wash sale rule (IRC Section 1091) disallows a capital loss deduction if you purchase the same or a substantially identical security within 30 days before or after the sale that generates the loss. The disallowed loss is added to the basis of the replacement security, deferring rather than eliminating the tax benefit.