Erin Moriarity Explains Why Rich Retirees Love Brokerage Accounts

“Taxable brokerage account” may not be the first thing that pops into your head when you think about retirement. But as financial pro Erin Moriarity explains in a new video, a well-funded brokerage account can offer big-time benefits for retirees.

Moriarity, the host of the popular Erin Talks Money YouTube channel, said these accounts can be powerful tools for making your retirement income as tax-efficient as possible. With careful planning, it’s possible to withdraw tens of thousands of dollars while paying little or no federal capital gains tax.

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“It is entirely possible to pull, say, $70,000 from a brokerage account and pay $0 in federal taxes,” Moriarity said in the video. “We are not saying the taxes are delayed. We are saying zero, permanently, forever.”

It’s all above board and in line with how the tax code is designed, yet many Americans don’t understand the tax flexibility that brokerage accounts offer.

What Brokerage Accounts Can Do That Other Accounts Can’t

For starters, you can access money from brokerage accounts before you turn 59 ½ without incurring early withdrawal penalties. This makes them popular with early retirees.

Yes, brokerage accounts are taxable, but it’s more complicated than that. Withdrawals from brokerage accounts are made up of the “basis” — the money you’ve contributed — and the “gain.” The gain portion is taxable. The basis portion is not.

“When you take a draw from a brokerage account, you're not withdrawing basis or growth as separate buckets,” Moriarity said. “You are selling shares. And every share is made up of two components. We have the cost basis, which is what you originally paid for it, and the capital gain, how much it's grown since then. When you sell, you're selling both pieces at once in whatever proportion that exists within those shares.”

She gave an example of an original investment of $600,000 that is now worth $1M. If the shares you sell have the same 60% basis/40% gain as the overall account, a sale of $100,000 would break down into $60,000 of non-taxable basis and $40,000 of taxable gain. In other words, you would only pay taxes on the $40,000, not on the entire amount.

“This is really the core mechanic of a brokerage account and it's something that makes it distinctly different than, say, a traditional IRA where every dollar goes in tax-deferred,” Moriarity said.

What Makes Brokerage Accounts Powerful

One of the biggest advantages of a taxable brokerage account is that you don’t have to sell your investments proportionately. You can choose which shares you sell, and that choice can dramatically change how much of your withdrawal is taxable gain versus tax‑free basis.

Because every share has its own cost basis, picking high‑basis shares means you’re realizing very little taxable gain. Picking low‑basis shares means you’re intentionally realizing more gain. And if you sell shares that are underwater, you’re harvesting a loss that can offset gains elsewhere.

That flexibility becomes even more valuable for people who’ve been investing for years through dollar‑cost averaging. Instead of one big block of shares, you end up with dozens or hundreds of tax lots, each with different purchase dates and different levels of appreciation. That variety gives you options: target newer shares with smaller gains, older shares with bigger gains or losing shares to reduce your taxable income.

This control matters because long‑term capital gains stack on top of your ordinary income. Social Security, IRA withdrawals and wages fill the lower part of your tax stack first. Only after that do capital gains come into play. If Social Security pushes you close to the top of a bracket, you can use carefully chosen brokerage sales to stay within the 0% or 15% long‑term capital gains brackets.

“You have multiple levers and which ones you pull on, that's entirely up to you,” Moriarity concludes. “You can pull on some and keep others steady, and this really allows you to have greater control over your tax bill once you get to retirement.”

There are other factors to consider, including state taxes if they are collected where you live. Consulting with a tax professional can help you strike the right balance for your situation.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.