Personal Finance & Estate › Investing basics & strategy › Asset allocation (stocks, bonds, cash, real estate)
Taxable brokerage account (individual, joint or trust)
· Account or plan
Standard practiceWhat most planners, CPAs and attorneys recommend.
An ordinary investment account with no contribution limits, no withdrawal rules, and tax due each year on income and realized gains.
See it on the Personal Finance & Estate map →How it works
It can be titled to one person, jointly, or to a living trust, which avoids probate. Dividends, interest and sales are reported yearly on Forms 1099. Holdings kept over a year get federal long-term rates of 0%, 15% or 20%, plus 3.8% net investment income tax at higher incomes; California taxes all gains as ordinary income, up to 13.3%. At death, heirs generally get a stepped-up basis. Traps: wrong titling and lost cost-basis records. SIPC covers broker failure, not market losses.
Why it matters for you
It is the flexible, liquid account for goals beyond retirement-account limits, usable any time without penalties.
Rules, limits and sources (2026)
Forms 1099-B and 1099-DIV; IRC Sec. 1(h) sets capital gains rates and Sec. 1014 the step-up. In California, community-property titling can step up both halves at the first spouse's death.
Watch out for
Lawmakers have periodically proposed limiting the step-up in basis at death; none had passed as of 2026.
Connections (4)
▸Taxable brokerage account (individual, joint or trust) holds the liquid, no-limit part of Asset allocation (stocks, bonds, cash, real estate)Standard practice
How they connect
Retirement accounts have contribution caps and withdrawal rules; the taxable brokerage account has neither. It holds the part of an allocation that can be added to without limit and tapped any time, such as building-sale proceeds or excess cash flow.
When it applies
Offered by every major brokerage; online stock-trade commissions fell to $0 at the biggest firms in October 2019.
How sure?
Account agreements and yearly Forms 1099; SIPC membership protects custody if a broker fails.
Watch out for
Which assets belong here rather than in IRAs is an asset-location question with no single answer.
▸Taxable brokerage account (individual, joint or trust) passes to heirs with Step-up in basis at deathLaw or rule (2026)
How they connect
Stocks and funds held in a taxable account at death get a stepped-up basis, so heirs can sell without tax on the lifetime gain; retirement accounts don't. That favors keeping the most appreciated shares, spending from other sources, and selling losing positions during life, since losses step down and vanish.
When it applies
Applies to any brokerage account included in an estate, including joint, trust and transfer-on-death accounts.
The rule
IRC Sec. 1014; brokers have reported cost basis since 2011 and update inherited lots to date-of-death values.
Watch out for
Spouses' joint accounts get only a half step-up unless held as community property; brokers apply this unevenly, so heirs should check basis records.
▸Tax-loss harvesting & the wash-sale rule works only in a Taxable brokerage account (individual, joint or trust)Law or rule (2026)
How they connect
Losses only count for tax in a taxable account. Inside IRAs, 401(k)s and Roths, gains and losses are not reported, so there is nothing to harvest; and repurchasing the sold fund in an IRA within 30 days permanently disallows the loss.
When it applies
Applies to individual, joint and trust brokerage accounts; brokers report sales and some wash sales on Form 1099-B.
The rule
IRC Sec. 1091; Rev. Rul. 2008-5 on IRA repurchases.
Watch out for
Brokers track wash sales only within one account, so investors with several accounts or advisors must track the rest themselves.
▸Taxable brokerage account (individual, joint or trust) is covered against broker failure by FDIC & SIPC (bank deposit and brokerage protection)Law or rule (2026)
How they connect
If a brokerage fails and customer assets are missing, SIPC restores up to $500,000 per customer per ownership capacity (individual, joint, trust), including $250,000 cash. Customer securities are legally segregated, so most failures end in transfers to another firm. Cash in sweep programs may instead get FDIC coverage at partner banks. Market losses aren't covered.
When it applies
SIPC has handled more than 300 brokerage liquidations since 1970, including Lehman Brothers and Bernard Madoff's firm in 2008 and MF Global in 2011.
The rule
The Securities Investor Protection Act and the SEC's customer-protection rule (15c3-3) require segregation; SIPC annual reports list cases and recoveries.
Watch out for
'Excess SIPC' policies sold by large brokerages, privately insuring above $500,000, have rarely been tested in a major failure.