What is a brokerage account?

If you're interested in investing or trading, you could consider opening a brokerage account. Here's what to know before you do.

What is a brokerage account?

A brokerage account is an investment account that allows you to buy and sell investments like stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

Many people have other investment accounts, such as a 401(k) through an employer, an IRA (traditional or Roth), or a health savings account (HSA). These types of accounts often come with rules about who can open the account, what the money can be used for, and when you can withdraw that money penalty-free.

Regardless of your investing experience, you could consider opening a brokerage account if you are looking to invest or tactically trade the market, and perhaps as part of a larger strategy for retirement or health care planning.

Benefits of a brokerage account

Similar to other investing accounts, a brokerage account enables investing in stocks and other investments that have the potential to increase in value over time. Brokerage accounts also offer these additional features that could make them an attractive part of your overall investing portfolio.

Wide range of investments

Even if you already have an investment account, you may still consider a brokerage account for its broad access to investment types and orders.

No contribution limits

The IRS or your state sets annual contribution limits for other types of investing accounts, including IRAs, 401(k)s, HSAs, and 529 plans. Brokerage accounts don't have a maximum.

No early withdrawal penalties

Generally, if you take out money from retirement accounts before you reach a certain age or before you've had the account for a certain amount of time, you will be dinged with early withdrawal fees. With a brokerage account, any money you contribute or earn is yours to withdraw at any time. Just know that any earnings, or gains from selling investments you bought at a lower price, as well as any dividends or interest paid, usually will be taxed.

No income restrictions

Your ability to contribute to one popular type of retirement account, a Roth IRA, is based on your income. There are no income requirements to open and fund a brokerage account—though some brokerages require a minimum investment to open one.

In addition, some types of investments purchased within a brokerage account may require a minimum investment to own. While most brokerages require owners to be 18, some allow you to invest with parental consent if you are as young as 13. Make sure you understand the rules governing accounts geared to teens and tied to parents/guardians, for example, around access that parents/guardians will have.

Potential tax strategies, like tax-loss harvesting and long-term capital gains tax rates

Brokerage accounts may not come with the same tax advantages for contributions and withdrawals as other types of investment accounts, but they still present opportunities to implement tax-aware strategies.

First, because you must report to the IRS any realized gains and losses annually in your brokerage account, you may be able to deduct realized losses to reduce your tax bill through what's known as tax-loss harvesting. You can tax-loss harvest in a brokerage account to offset realized gains and a small amount of ordinary income, including interest and unqualified dividends. This demonstrates how brokerage and deposit accounts can be complementary.

Another potential tax benefit: The tax rate you may pay on any profits you earn from selling investments (called capital gains taxes) are lower for investments held longer than 1 year. These "long-term capital gains" are taxed at a rate below your federal income tax rate, or at 0%, 15%, or 20%, depending on your income and filing status. Anything held less than a year would be considered short-term gains, and those are taxed at your federal income tax rate, which, if you make over $48,475 as a single filer in 2025, is 22% or more. For dependent children under age 18, unearned income (which capital gains are) between $1,350 and $2,700 is taxed at the child's tax rate, and anything above $2,700 is taxed at the parent's or guardian's tax rate.

Considerations before opening a brokerage account

Keep in mind these brokerage account facts that differentiate them from other types of investment accounts you may own.

No tax advantages for contributions or eligible withdrawals

Unlike 401(k)s, some IRAs, and HSAs, you generally cannot deduct your contributions to a brokerage account from your taxable income each year. And earnings don't have the potential for tax-free or tax-deferred growth. You typically owe taxes on any dividends (payments that publicly traded companies may distribute to shareholders based on the companies' earnings), interest (any cash held in the account that isn't invested), and realized gains.

No company match

Some employers offer a match to certain investing accounts—which is like free money for the account owner—based on things like your contributions to a work-sponsored retirement plan. Employers might even offer direct contributions to other types of accounts (such as HSAs) without requiring a contribution on the employee's part. With a brokerage, all contributions are made by the owner of the account.

There's some inherent risk

If a bank account is held at an FDIC (Federal Deposit Insurance Corporation)-insured bank, deposits are covered up to $250,000. For brokerage accounts, there is SIPC (Securities Investor Protection Corporation) coverage, which covers up to $500,000 in securities (including a $250,000 limit on cash not in investments) in a brokerage account. However, there is no shield against individual investments losing value. (This is the case with other investment accounts, too.) Diversifying your investments—aka having different types of investments in your portfolio (stocks, bonds, and more)—can help mitigate the risk of loss in one type of investment.

How to open a brokerage account—and use it

You can open a brokerage account in a few minutes at a brick-and-mortar or online brokerage by completing an application, then funding the account once it's open. Brokerage accounts typically offer a greater variety of investment options than a 401(k), IRA, or HSA, depending on the administrator. You can decide how to invest yourself, pay a financial professional for guidance and management, or consider a robo advisor, which uses technology to help build your portfolio based on your goals and situation, time horizon, and risk tolerance, for fees typically lower than a financial pro.