Why High Earners Need a Brokerage Account Beyond Their 401(k)
James Marsden, CFP®, CRPC®, AIF®
Many high-income earners are doing exactly what traditional financial advice tells them to do.
They max out their 401(k).
They fund an HSA.
They contribute to a Roth IRA or use a backdoor Roth strategy when appropriate.
Then they look at the rest of their cash flow and ask:
Where should I save next?
For many high earners, the answer isn't necessarily putting even more money toward retirement.
It may be building a taxable brokerage account that creates flexibility between today's cash needs and long-term retirement assets.
At Apeiron Planning Partners, we often refer to this as a mid-term investment account.
It's the missing middle we see in many otherwise strong financial plans.
The Problem With Having Only Cash and Retirement Accounts
When we first review a high earner's financial picture, we commonly see money concentrated in two places.
There may be a healthy amount of cash in checking and savings accounts.
Then there may be substantial wealth accumulating inside:
- 401(k)s
- 403(b)s
- Traditional IRAs
- Roth IRAs
- HSAs
On paper, that household may be doing extremely well.
But there's something missing.
Accessible invested money.
Most major financial goals don't conveniently happen after age 59½ or 65.
They happen throughout your life.
You may want to:
- Buy or renovate a home
- Take a sabbatical
- Change careers
- Start a business
- Help children with education
- Purchase a second home
- Travel
- Retire early
- Make a major purchase
- Create more freedom around work
That's why we believe financial planning needs a third bucket between cash and retirement.
What Is a Taxable Brokerage Account?
A taxable brokerage account is an investment account without the same retirement-specific contribution limits and withdrawal restrictions associated with accounts such as a 401(k) or IRA.
You can generally invest in stocks, bonds, mutual funds, ETFs, and other investments depending on the account and custodian.
Unlike a retirement account, you don't receive the same tax advantages for contributing money.
However, you gain something extremely valuable:
Flexibility.
Money isn't being specifically earmarked for retirement.
That makes a brokerage account useful for goals that may occur years—or even decades—before traditional retirement.
We Call It the Mid-Term Investment Account
We like to think about money across three broad time horizons.
Short-Term: Cash
This is money that needs to be readily accessible.
It might include:
- Emergency reserves
- Upcoming expenses
- Near-term purchases
- Regular cash-flow needs
Liquidity and stability generally matter more than growth here.
Mid-Term: Taxable Brokerage Account
This is money you want accessible but don't necessarily expect to spend immediately.
Depending on the individual situation, goals may be three, five, ten, or even fifteen years away.
The investment strategy should reflect the timeline and purpose of the money.
Long-Term: Retirement Accounts
These are assets primarily intended for later in life.
Examples include:
- 401(k)s
- 403(b)s
- IRAs
- Roth IRAs
- HSAs
These accounts can offer significant tax advantages, making them powerful long-term wealth-building tools.
The goal isn't choosing one bucket.
It's having the right balance between all three.
Why Not Just Keep the Extra Money in Cash?
Because there can also be a cost to having too much liquidity.
Cash is extremely useful for short-term needs.
But high earners sometimes accumulate hundreds of thousands of dollars in checking, savings, or money market accounts simply because they aren't sure what else to do with it.
If that money is intended for a goal many years away, holding everything in cash may sacrifice potential long-term growth and purchasing power.
That doesn't mean investing every available dollar.
It means asking a better question:
When am I realistically going to need this money?
Money needed next year should generally be treated differently than money intended for a goal ten years from now.
That's where planning around time horizon becomes important.
Why Not Put Everything Into Retirement Accounts?
Tax-advantaged retirement accounts are excellent tools.
But tax advantages aren't the only thing that matters.
Access matters too.
Imagine someone has built $2 million of wealth but almost all of it is inside retirement accounts and their home.
They may have substantial net worth while still having surprisingly little financial flexibility.
A brokerage account can provide capital for opportunities and goals without making every financial decision dependent on retirement assets, home equity, or borrowing.
That becomes especially valuable for people who want the option to retire early or make work optional before traditional retirement age.
Our article on retirement planning in Dallas explores why preparing for retirement involves much more than simply accumulating a large retirement account.
Brokerage Accounts Can Also Become Important in Retirement
This is where the mid-term account becomes even more valuable.
A common situation we see with people approaching retirement is that nearly all their invested wealth sits inside pre-tax retirement accounts.
Then retirement begins.
They need $20,000 for a trip.
Or $50,000 for a vehicle.
Or $100,000 for a renovation.
If the only available investment account is a Traditional IRA, generating that cash can also mean generating significant taxable income.
Every additional dollar withdrawn from a pre-tax retirement account can potentially affect:
- Federal income taxes
- Social Security taxation
- Medicare IRMAA premiums
- Future Required Minimum Distributions
- Overall retirement tax planning
A taxable brokerage account creates another place from which money can potentially be sourced.
That's why we often call it the missing middle.
It isn't merely a bridge to retirement.
It can become an important source of flexibility throughout retirement as well.
We discuss this broader strategy in Retirement Income Planning in Dallas.
Tax Diversification Matters
People frequently hear about investment diversification.
We also want clients thinking about tax diversification.
Ideally, retirement wealth may eventually exist across several different tax environments:
Pre-tax accounts such as Traditional IRAs and 401(k)s.
Tax-free accounts such as Roth IRAs.
Taxable accounts such as brokerage accounts.
Each has different tax characteristics.
Having assets spread across multiple account types can give retirees more choices about where money comes from.
That flexibility can become especially important when coordinating withdrawals, Roth conversions, Social Security, Medicare premiums, and Required Minimum Distributions.
The goal isn't avoiding taxes entirely.
It's having more control over when and how taxable income is created.
A Brokerage Account Can Create Career Flexibility Too
Not every financial goal involves buying something.
Sometimes what people really want to buy is time.
Maybe you want to:
- Leave a demanding job
- Take six months between roles
- Start consulting
- Launch a business
- Work fewer hours
- Retire at 55 instead of 65
A large retirement account may tell you you're wealthy.
A well-funded brokerage account may give you the flexibility to actually make a change.
That distinction matters.
We've seen many high-income professionals reach a point where accumulating more money isn't necessarily their biggest financial challenge.
Their challenge is turning the wealth they've accumulated into options.
How Much Should You Put Into a Brokerage Account?
There isn't one percentage that works for everyone.
It depends on:
- Income
- Spending
- Cash reserves
- Retirement savings
- Tax situation
- Age
- Expected retirement date
- Upcoming goals
- Career stability
- Family needs
Someone planning to work until 70 may need a very different strategy than someone hoping to make work optional at 50.
This is why we generally don't think of a brokerage account as simply:
"Whatever is left after I max out my 401(k)."
Instead, it should have a purpose within the broader financial plan.
The Goal Isn't Maximum Tax Deferral
This is an important distinction for high earners.
When you're in a high tax bracket, maximizing every available tax deduction can feel like the obvious choice.
And sometimes it is.
But the goal of financial planning isn't necessarily to minimize this year's taxes.
It's to build the financial structure that best supports your life over time.
Saving every available dollar into pre-tax retirement accounts can create tremendous tax deferral today while leaving you with less flexibility later.
That's one reason tax planning should be considered alongside investment and retirement planning rather than independently.
Think of Your Financial Life in Three Buckets
Instead of asking:
“Should I save more into my 401(k) or brokerage account?”
Consider a broader question:
“Do I have the right amount of money available for each stage of my life?”
You need cash for today.
You need retirement assets for decades from now.
And you need something in between.
For many high earners, that middle bucket is the piece that's missing.
The Bottom Line
Maxing out a 401(k) is an excellent accomplishment.
But it doesn't necessarily mean your financial plan is complete.
A taxable brokerage account can provide something retirement accounts aren't specifically designed to provide:
flexibility before and during retirement.
It can help fund major purchases, career changes, early retirement, family goals, and eventually retirement spending without forcing every financial decision through a retirement account.
The goal isn't to accumulate the largest possible 401(k).
It's to build wealth in a way that gives you choices.
And for many high earners, the mid-term investment account is an important part of creating those choices.
If you'd like help determining how cash, brokerage investments, and retirement accounts should work together in your financial plan, you can start a conversation with our team.