You'll need a brokerage account if you want to start investing, and they're easy to open online
- A brokerage account allows you to buy and sell stocks, bonds, and other investments through a trusted brokerage firm.
- Brokerage accounts come in different styles for different purposes. For example, retirement investing.
- Different types of accounts have different tax implications, so it is important to understand the type of brokerage account you have and any restrictions or requirements it includes.
- See Business Insider's picks for the best online brokerages »
A brokerage account is a type of financial account you can use to buy and sell stocks, bonds, funds, and other securities. Brokerage accounts typically come from a bank or stock brokerage firm that keeps your money and investments safe while enabling you to buy and sell supported assets.
If you want to invest in the stock market, you'll need an investment account. But these types of accounts come in different forms. You may have multiple brokerage accounts for different purposes, including retirement.
Adulting means managing your finances for both short and long-term goals. For your long-term financial goals, a brokerage account is a key account alongside checking, savings, and credit card accounts that belong in your financial toolbox.
What is a brokerage account?
A brokerage account is a financial account that holds cash, stocks, mutual funds, ETFs, bonds, and other assets.
Brokerage accounts work a lot like a bank account. You can deposit and withdraw funds, and your account is most likely insured by a government entity if it is located in the United States. But unlike a bank account, you can put a lot more than cash in a brokerage account.
Passive investors are likely to want a brokerage account for buy-and-hold investing. This investment strategy generally relies on stocks, bonds, and funds as underlying assets. Active investors use brokerage accounts to buy and sell on a faster cadence. Experts employ options, futures, foreign exchange, and other securities in their accounts.
Taxes and brokerage accounts: What you need to know
A standard brokerage account is taxable. This means you have to pay taxes on any qualifying investment gains in the account when a gain is realized — i.e. when you sell stocks or other assets. You can offset these taxes with losses, though hopefully you don't have too many of those.
Some brokerage accounts give you special tax rules that give you an advantage over a regular, taxable brokerage account. Examples include IRA, Roth IRA, SEP IRA, 401(k), 403(b), and other retirement accounts.
With 401(k), traditional IRA, and some other accounts, your contributions to the account are made pre-tax and you only pay taxes on withdrawals in the future, potentially at a lower tax rate.
Roth IRA and other Roth-style accounts take after-tax contributions, but you don't have to pay any taxes on capital gains when you withdraw in retirement.
If you withdraw early from a tax-advantaged account, taxes and penalties may apply. Health savings accounts (HSAs) may also feature a brokerage component with a tax benefit.
There are many popular brokerage firms to choose from, including Vanguard, Charles Schwab, and Fidelity, and you can open an account online.
Before opening an account, look for any fees and minimum balance requirements before signing up. Once your account is open, you may also have access to a suite of research and education materials, as well as mobile and desktop trading apps, to enhance your experience.
If you plan to invest, you need a brokerage account. Now that you know what a brokerage account is, you are ready to research the best brokerage for your unique needs. It only takes a few minutes to get started and a day or two to fund your account. You could be investing in no time.
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Disclosure: TD Ameritrade is a partner of Insider, Inc.’s business development team, which is separate from its editorial department. We may receive a commission if you open an account.
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