What is a brokerage account and how does it work?

A brokerage account is an investment account you open with a brokerage firm that allows you to buy and sell investments like stocks, bonds, ETFs, mutual funds, and other securities. It’s the most common type of account people use to invest outside of employer-sponsored retirement plans.

A brokerage account works similarly to a bank account in that you deposit money into it, but instead of earning interest in a savings account, you use the funds to purchase investments, which are subject to market risk. There are no limits on how much you can deposit or withdraw, and you can access your money at any time by selling your investments and transferring the proceeds to your bank.

The brokerage firm holds your investments on your behalf and facilitates your trades. Your account is typically protected by SIPC (Securities Investor Protection Corporation), which covers up to $500,000 per customer (including up to $250,000 in cash) if the brokerage firm fails. SIPC protection does not cover investment losses from market fluctuations.

Brokerage accounts vs. retirement accounts

The key difference between a brokerage account and a retirement account like an IRA or 401(k) is the tax treatment.

Most financial professionals suggest using both. A common approach is to contribute enough to your 401(k) for any employer match, then fund an IRA. If you reached the contribution limit for your IRA or 401(k), opening a brokerage account is a great way to continue investing beyond those limits. For a deeper look at how these accounts work together, see our guide on investing for beginners.

Brokerage accounts vs. bank accounts

A brokerage account and a savings account serve different purposes. A savings account holds cash and earns interest, typically insured by the FDIC up to $250,000 per depositor. A brokerage account holds investments that can grow (or lose) value based on market performance, protected by SIPC rather than FDIC.

The distinction matters because money in a savings account won’t lose value in a market downturn, but it also likely won’t grow much or keep you significantly ahead of inflation. The national average savings APY is below 0.50%. Investing through a brokerage account carries more risk, but investments made in the account could potentially offer attractive returns over time.

Types of brokerage accounts

There are several types of brokerage accounts, each suited to different investors and goals.

Taxable brokerage account. This is the standard type. You fund it with after-tax dollars, invest in the assets the platform offers, and pay taxes on any gains, dividends, or interest each year. There are no contribution limits, withdrawal restrictions, or required minimum distributions. You decide when to buy, sell, and withdraw.

Managed account (robo-advisor). A managed brokerage account is where a platform builds and maintains a diversified portfolio for you based on your goals, risk tolerance, and time frame. It can handle things automatically like investment selection, rebalancing, and dividend reinvestment. Acorns Invest is an example: it invests your money into diversified ETF portfolios, with optional features like Round-Ups® (which invest your spare change from everyday purchases) and Custom Portfolios for Gold Plan customers who want to add individual stocks and ETFs alongside their managed portfolio.

Self-directed account. A self-directed brokerage account gives you full control over every investment decision. You choose what to buy and sell, when to trade, and how to allocate your portfolio. Most major online brokerages now offer commission-free trading on stocks and ETFs, making self-directed investing more accessible than ever.

Custodial brokerage account (UGMA/UTMA). A custodial account is opened by an adult on behalf of a child. The assets belong to the child and are transferred to them at the age of transfer (typically 18 or 21 depending on the state). Unlike 529 plans, custodial accounts aren’t limited to education expenses and can be used for anything the child pursues. Acorns Early Invest offers custodial accounts as part of the Gold Plan, allowing you to start investing for your kids with an automated approach.

How are brokerage accounts taxed?

Understanding the tax treatment is what sets brokerage accounts apart from retirement accounts. In a taxable brokerage account, you owe taxes on three types of investment income:

Capital gains. When you sell an investment for more than you paid, the profit is a capital gain. How it’s taxed depends on how long you held the investment. Investments held for more than one year are taxed at the long-term capital gains rate: 0%, 15%, or 20%, depending on your taxable income. For 2026, single filers with taxable income up to $49,450 (or married couples filing jointly up to $98,900) pay 0% on long-term gains. Investments held for one year or less are taxed as short-term capital gains at your ordinary income tax rate, which can be as high as 37%.

Capital gains from funds (including ETFs). You can also owe capital gains taxes even if you don’t sell your investment. ETFs and mutual funds may sell securities inside the fund, generating gains that get passed on to investors as a distribution. This isn’t something you can control. These distributions are taxable on how long the fund held those investments, not you.

Dividends. Qualified dividends (from most U.S. stocks and funds held for a minimum period) are taxed at the same lower rates as long-term capital gains. Ordinary dividends are taxed at your regular income tax rate.

Interest. Interest comes from bonds or cash holdings in your account and is taxed as ordinary income.

If you buy and hold investments for years without selling, you don’t owe taxes on the unrealized gains. This gives you control over when you trigger a tax event. You can also use tax-loss harvesting, which involves selling investments at a loss to offset gains and reduce your tax bill.

Unlike Traditional IRAs and 401(k)s, brokerage accounts have no required minimum distributions. You’re never forced to sell.

How to open a brokerage account

Opening a brokerage account takes a few minutes with most platforms. Here’s what you’ll need:

Personal information: This can be your name, address, date of birth, and Social Security number.

Employment and financial details: Most platforms ask about your employment status, investment experience, income, and net worth. This helps them comply with regulatory requirements and, in the case of managed accounts, recommend an appropriate investment strategy.

A funding source: Connect a bank account to deposit money. Many platforms let you start with $5 or less.

Choose your approach: Decide whether you want a self-directed account (you pick the investments), a managed account (the platform builds your portfolio), or a combination of both. For beginners who want to start investing without needing to research individual stocks, a robo-advisor is often the simplest entry point.

Do you need a brokerage account?

If your only investment accounts are an employer 401(k) and an IRA, a brokerage account gives you additional flexibility. You might consider one if you’ve maxed out your retirement contributions and want to keep investing, if you’re investing for a goal that’s less than 10 to 15 years away (where retirement account penalties would apply), or if you simply want more control over when and how you access your money.

A brokerage account isn’t a replacement for retirement accounts. The tax advantages of an IRA or 401(k) are likely too valuable to skip. But as a complement to those accounts, a brokerage account is one of the most versatile tools in your financial toolkit.

Investing involves risk, including loss of principal. Past performance does not guarantee future results. No level of diversification or asset allocation can ensure profits or guarantee against losses.

Start investing your spare change with Round-Ups.

Frequently asked questions

What is a taxable brokerage account?

A taxable brokerage account is a standard investment account where you pay taxes on dividends, interest, and capital gains. There are no contribution limits or withdrawal restrictions. Investments held for more than one year and then sold are taxed at the lower long-term capital gains rate (0%, 15%, or 20%), while investments sold within a year of purchase are taxed as ordinary income.

What is a brokerage account used for?

People use brokerage accounts for goals like building wealth, saving for a house, generating investment income, or simply growing their money over time with no restrictions on when they can access it. It’s the primary account type for general investing outside of retirement accounts.

Is a brokerage account the same as a retirement account?

No. A brokerage account and a retirement account (like an IRA or 401(k)) are different. Retirement accounts offer distinct tax advantages but have contribution limits and withdrawal restrictions. Brokerage accounts have no contribution limits or withdrawal restrictions, but you could owe taxes on investment gains and dividends annually. Many people use both types of accounts together.

How much money do I need to open a brokerage account?

Many brokerage platforms have no account minimum. Some robo-advisors, including Acorns, let you start investing with as little as $5. Fractional shares mean you can own a piece of any stock or ETF regardless of its share price. You don’t need a large sum to open an account and begin investing.

Are brokerage accounts safe?

Brokerage accounts are protected by SIPC, which covers up to $500,000 per customer (including up to $250,000 in cash) if the brokerage firm fails. This protects you if the firm goes out of business, but it does not protect against investment losses from market declines. All investing carries risk, including the possibility of losing money. Brokerage firms are also regulated by the SEC and FINRA, which set rules for how firms handle your money and investments.

What is a custodial brokerage account?

A custodial brokerage account (UGMA or UTMA) is an investment account an adult opens and manages on behalf of a child. The assets belong to the child and transfer to them when they reach the age of transfer (typically 18 or 21, depending on the state). Unlike 529 plans, custodial accounts can be used for any purpose, not just education. Acorns Early Invest offers custodial accounts as part of the Gold Plan.