Roth IRA vs taxable account: where to invest

If you're investing for decades, the account you use can matter almost as much as what you buy. A Roth IRA lets your investments grow and come out tax-free in retirement, but caps how much you can put in and limits access to the growth. A taxable brokerage account has no limits and no strings — and taxes you along the way.

Most long-term investors end up using both. Here is how they compare, the 2026 numbers, and how to decide what goes where.

The two accounts side by side

	Roth IRA	Taxable brokerage account
Money you put in	after tax, no deduction	after tax
Annual limit (2026)	$7,500; $8,600 if 50 or older	none
Income limit	yes (see below)	none
Dividends and gains while invested	not taxed	taxed each year when paid or realized
Withdrawals	contributions anytime; earnings tax-free if qualified	anytime; you pay tax on realized gains
Required minimum distributions	none for the original owner	none
Tax-loss harvesting	not possible	possible
Cost basis step-up at death	not relevant (already tax-free)	yes, heirs inherit at market value

Roth IRA: the 2026 numbers

• Contribution limit: $7,500, plus a $1,100 catch-up if you're 50 or older. The limit is shared across all your traditional and Roth IRAs.
• Earned income: you can't contribute more than your taxable compensation for the year (a working spouse's income can fund a spousal IRA).
• Income phase-out: the amount you can contribute shrinks, then disappears, as your modified AGI rises:

Filing status	Full contribution below	No direct contribution above
Single or head of household	$153,000	$168,000
Married filing jointly	$242,000	$252,000
Married filing separately	—	$10,000

• Deadline: contributions for a tax year can be made until the tax filing deadline the following April (extensions don't count).

Getting money out

Roth withdrawals follow an ordering rule. Your contributions come out first, and you can take them back at any time without tax or penalty. Earnings are tax-free only in a qualified distribution: generally after you're 59½ and at least five years after your first Roth contribution. Take earnings out earlier and they're usually taxable, often with a 10% penalty, unless an exception applies.

That makes a Roth surprisingly flexible for contributions — but the growth is meant for retirement.

Taxable brokerage account: flexible, but taxed

A regular brokerage account has no contribution limit, no income cap, and no rules about when you can withdraw. The cost is tax along the way:

• Dividends are taxed every year — qualified dividends at 0%, 15% or 20%, ordinary ones at your income rate (see how dividends are taxed).
• Gains are taxed when you sell: at ordinary rates if you held a year or less, at long-term rates after that.
• Losses can be harvested to offset gains and up to $3,000 of ordinary income a year (see tax-loss harvesting).
• Heirs receive a stepped-up basis, so gains built up during your lifetime are never taxed.

What tax-free growth is worth

Invest $7,500 a year for 30 years at an illustrative 7% annual return, and you end up with roughly $708,000 — $225,000 of contributions and about $483,000 of growth. To try your own amounts, return and horizon, use our compound interest calculator with monthly contributions.

In a Roth IRA, qualified withdrawals of the whole amount are tax-free. In a taxable account, selling everything at once would mean long-term capital gains tax on the growth: about $72,500 at the 15% rate, plus the tax you would have paid on dividends every year along the way, which also slows compounding. The longer the horizon, the bigger the Roth's edge.

What to hold where: asset location

When you use both accounts, put each investment where it's taxed least:

• In the Roth IRA: what you expect to grow the most (its growth is never taxed), and income taxed at ordinary rates — REITs, bond funds, high-turnover funds.
• In the taxable account: tax-efficient investments such as broad index ETFs (low turnover, mostly qualified dividends), stocks you plan to hold for decades, and foreign stocks whose withholding tax you can credit.

A common order of priorities

This is a general framework, not advice for your situation:

1. If your employer matches 401(k) contributions, contribute enough to get the full match.
2. If you're eligible, fund a Roth IRA up to the limit.
3. Add more to workplace retirement accounts if you value the tax treatment.
4. Invest the rest in a taxable brokerage account.

Above the Roth income limits, some investors use a "backdoor" Roth: a nondeductible contribution to a traditional IRA, converted to a Roth. It works cleanly only if you have no other pre-tax IRA balances; otherwise the pro-rata rule makes part of the conversion taxable (Form 8606).

Track both accounts in one place

Whatever the mix, judge your investing by the whole portfolio, not one account at a time. GetHossa combines your holdings, shows your total return and time-weighted return, and compares them with what the same contributions would have earned in the S&P 500; our guide to TWR vs MWR explains why that is the fair comparison. For the taxable account, the realized gains tracker lists every closed position with its FIFO cost basis and holding period, so you can see which sales were short-term and which long-term.

This article is for educational purposes only and is not tax or investment advice. For decisions about your accounts, consult a tax or financial professional.