Here's What Happens When You Only Save for Retirement in a Regular Brokerage Account

It's important to save money for retirement so you have a nest egg to tap later in life. Having savings could help ensure you're able to cover your expenses in retirement without financial stress.

It's typically a good idea to assemble a portfolio of investments for retirement -- and ideally go heavy on stocks while retirement is still many years away. That's because stocks tend to generate strong returns over long periods, and you'll need those to grow your balance.

You have choices when it comes to choosing a home for your retirement portfolio. You could keep those assets in a regular brokerage account. But you may want to limit yourself to only some of your assets. If you don't save for retirement at all in an IRA or 401(k), you'll be giving up a host of tax breaks.

When the IRS throws you a bone

It's not always easy to find tax breaks that save you money. But in the context of retirement savings, there's a really easy way to reap tax benefits.

All you need to do is fund a traditional IRA or 401(k) plan, and your contributions will be tax-free. So if you put $5,000 into one of these accounts, the IRS won't tax you on $5,000 of income.

Traditional IRA and 401(k)s also allow for tax-deferred investment gains. This means you won't pay capital gains taxes every year as you make money in your portfolio. You'll only be taxed when you take withdrawals.

Roth IRAs and 401(k)s, meanwhile, don't give you a tax break on the money you put in. But these accounts give you tax-free gains and withdrawals.

By contrast, you won't get any of these tax breaks with a regular brokerage account. And that means if you keep all of your long-term savings in a taxable brokerage account, you're giving up a lot of IRS benefits -- benefits that could make it easier to save for retirement in the first place.

Plus, when you have to pay taxes on capital gains every year, that's money that comes out of your pocket instead of being available for you to invest. So that, too, could work to your detriment over time.

For example, let's say you're writing the IRS a $1,000 check every year for 40 years because you owe capital gains taxes on your investments. If, instead of doing that, you were to invest an extra $1,000 a year over 40 years at a 10% return, which is in line with the stock market's long-term average, you'd grow your $40,000 in investments to about $441,000.

It's a good idea to fall back on a brokerage account to some degree

Only saving for retirement in a regular brokerage account could mean losing out on many tax benefits. But it's a good idea to keep some of your nest egg in a taxable brokerage account for one big reason -- these accounts are not restrictive.

You can sell investments in a regular brokerage account and take that money out at any time without penalty. By contrast, tapping an IRA or 401(k) prior to age 59 1/2 generally results in a 10% early withdrawal penalty.

As such, you don't want to keep all of your savings in an IRA or 401(K). If you want to retire at age 54, for example, that may not be an option without a penalty. So having a portion of your savings in a regular brokerage account gives you more flexibility. But the key is to put a portion of your nest egg in a regular brokerage account -- not 100%.