Pros and Cons of Trading in Your Retirement Account

Trading in your retirement account has several potential advantages and disadvantages to consider as you develop your strategy.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Choosing to trade in your retirement account
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Key Takeaways

  • Trading in your retirement account may have potential tax advantages 
  • Consider your risk tolerance level and investing horizon when developing a trading strategy
  • Determine what portion of your portfolio you’d like to dedicate to active trading

Investors are like snowflakes—each one is unique. Some people invest for long-term goals while others are more focused on income. Some are willing to take on riskier assets for potentially higher gains, while others tread with caution.

With this in mind, you can view your retirement account from your own lens as you make decisions about a trading strategy. Actively trading in a retirement account such as an IRA comes with a different set of criteria than trading in a general account, because you’re likely depending on that money to help provide a healthy financial life in your golden years. So you’ll want to aim to ensure the moves you make today don’t risk putting your retirement income in jeopardy.

When you decide how actively you want to trade stocks within your retirement account, there are a number of potential advantages and disadvantages to consider. Primarily, trades within accounts such as IRAs or 401(k)s may benefit from tax advantages, and this strategy can be useful when rebalancing. However, investors should be aware that seemingly routine trades also have the potential to hamper portfolio performance and can be a riskier strategy.

Does Risk Tolerance Decrease with Age?

Determining your risk tolerance level is a key part of figuring out whether or how you should be trading in your retirement account. Generally, risk tolerance is connected to your investing horizon and tends to decline as you age. For example, younger investors who have decades to allow their portfolios to weather market ups and downs might prefer more risk to try to pursue more return.

In contrast, investors approaching retirement who want their retirement accounts to provide income might veer toward a less risky portfolio to try to keep their nest egg safe. Investors must consider their own situation to determine their unique level of risk when trading in a retirement account.

How Do You Choose Portfolio Allocation?

Once you’ve determined your risk level, you’ll have a better sense of how much you might want to allocate to active trading in your retirement account and how much to keep invested in a “set it and forget it” account.

More active trading may lead to more uncertainty in a portfolio, so investors who are comfortable taking on more risk might allocate a greater percentage of their portfolio to active trading than those who are more risk averse.

As with any portfolio, professional financial advisors always recommend having a healthy amount of diversification in your investments. Lumping all your funds into one investment is rarely a good idea. No matter how much you choose to allocate to active trading, consider having ample emergency funds so you can attempt to avoid tapping into your retirement security funds early to meet unexpected expenses. But remember: Asset allocation and diversification don’t eliminate the risk of experiencing investment losses.

What Are Some Potential Investment Goals for Trading in a Retirement Account?

Retirement accounts can offer tax advantages, which have the potential to bring savings advantages to investors making profitable trades. However, trading in a retirement account is not necessarily ideal for all investment goals.

Considering Trading in Your Retirement Account?

Before you get behind the wheel, make sure you understand the rules of the road. Learn more.  

The primary goal of a retirement account is to help you build savings that can provide some financial stability after your working years end. Some investors may have a goal of growing their nest eggs aggressively; others may want to protect the value of their investments to rely on its income. Still others may have priorities that fall somewhere in between.

Retirement accounts are generally not ideal for short-term goals such as buying a car or saving for college expenses because, with a few exceptions, early withdrawals carry a penalty.

How Do Investment Strategies Change over Time?

Trading in your retirement account does allow you to respond to market conditions and perhaps avoid losses or snag more gains. However, it’s also risky because buying and selling quickly could also lock in losses if emotions are a driving force.

As your investment goals, time horizon, and risk tolerance levels change throughout life, you can reshape your investment strategies, including how you go about trading in your retirement account.

Professional advisors recommend developing a plan for trading in your retirement account and a strategy for what to do during downturns. And, of course, avoid making decisions based on emotional reactions to short-term market movements. After all, your retirement security could be at stake.

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Key Takeaways

  • Trading in your retirement account may have potential tax advantages 
  • Consider your risk tolerance level and investing horizon when developing a trading strategy
  • Determine what portion of your portfolio you’d like to dedicate to active trading

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TD Ameritrade does not provide tax advice. Clients should consult with a tax advisor with regard to their specific tax circumstances.



Market volatility, volume, and system availability may delay account access and trade executions.

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The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

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