Taxable account.

In plain English

A taxable account, often called a taxable brokerage account, is an ordinary investment account that does not get the tax breaks of a 401(k) or IRA. You can put in as much as you want and take money out anytime, but the tradeoff is that the IRS taxes your dividends and interest each year, and taxes your gains when you sell at a profit. Long-term gains, on assets held more than a year, are usually taxed at a lower rate than short-term gains. Taxable accounts are where most people invest once they have filled their tax-advantaged accounts.

01Why it matters

Knowing an account is taxable changes how you invest in it, because every sale and dividend can create a tax bill that year.

02The math, step by step

You sell a stock in your brokerage account for a 2,000 dollar profit after holding it 18 months. Because you held it more than a year, you owe the lower long-term capital gains rate on that 2,000 dollars, not the higher short-term rate.

03What this is NOT