How to Use a Brokerage Account to Fund a Micro-Retirement (Without Touching Your 401(k))

More young people are stepping off the career treadmill—temporarily. Whether they call it a micro-retirement, an adult gap year, or a one-year sabbatical, the goal is the same: a purposeful break from full-time work without derailing long-term financial goals.

One key to making that happen? Funding it through a brokerage account—and not your 401(k). Here’s what you need to know about using a brokerage account to fund your micro-retirement.

Key Takeaways

• A brokerage account offers flexible access to your money without penalties, but smart planning is necessary to help avoid tax surprises and long-term savings setbacks.
• Plan at least five to seven years ahead of your micro-retirement if possible, and shift to safer investments as your break approaches.
• To avoid any unexpected financial strains during your micro-retirement, set firm deadlines to begin the job hunt (if applicable) and return to work.

Why Use a Brokerage Account?

Unlike a 401(k) or Roth IRA, a brokerage account allows you to withdraw funds at any time without early withdrawal penalties, making it an ideal vehicle for funding a micro-retirement. That’s why Eric Maldonado, the founder of California-based Aquila Wealth Advisors, redirected his own retirement contributions into a brokerage account before taking what he calls a “one-year working sabbatical.”

Avoiding these early withdrawal penalties is the major advantage of using a brokerage, according to Maldonado. Most qualified retirement accounts—like traditional IRAs and 401(k)s—have a 10% penalty on all withdrawals before age 59½ on top of any income taxes owed, he adds.

And while Roth IRAs offer more flexibility, Maldonado notes that a Roth IRA is “most effective” when you allow for compounding growth over decades. “Avoid killing the compounding effect of withdrawing from it early if at all possible,” he says.

Plan Early and Invest Strategically

“If you are going all in on the micro-retirement goal, a brokerage account is a smart place to redirect all new retirement savings contributions into,” Maldonado says. He recommends starting as early as possible—ideally five to seven years ahead—and saving more than you think you’ll need.

“Add 20% to whatever you think you need to provide a buffer for contingencies,” said Maldonado.

Early on, you can invest for growth. But as your leave date nears, shift your savings into safer assets. “You would most likely want to have your full year of expenses saved up and allocated into stable funds by the time you take a leave of absence,” he says, citing options like a money market fund, T-bills, or high-yield savings accounts.

If you have large capital gains on your assets, you can ease your tax burden by selling them in two separate years—half in December, and half in January.

Mind the Taxes and the Timeline

Before you start selling stocks or other assets in your brokerage account, be aware of the tax consequences.

“If you have large capital gains in stock positions, you could be paying 15% to 20% long-term capital gains taxes,” Maldonado notes. Consider splitting sales across two tax years—half in December, half in January—to ease the hit.

He also cautions about income taxes on interest from bonds or money market funds. And just as important as tax planning? Exit planning. “The biggest risk is defaulting into an extended micro-retirement unintentionally,” he says. To avoid a prolonged gap, set deadlines for starting your job search or becoming self-employed.

The Bottom Line

A brokerage account offers the flexibility you need to take a career break without touching your 401(k). But that flexibility only works if you’re proactive. To make the most of your micro-retirement, start planning years in advance, invest strategically, understand the tax implications, and above all, stay on track with your return-to-work goals to ensure your finances don’t fall under unnecessary strain.

“We tend to underestimate how expensive life is without an income, and we tend to overestimate how much we can save in a year or two—but don’t underestimate the power of focusing on your goals,” says Maldonado.