What is a brokerage account?
A brokerage account is a taxable investment account you open with a broker such as Schwab, Fidelity, Interactive Brokers, E*TRADE, or Robinhood. It holds stocks, ETFs, mutual funds, bonds, and options. Unlike retirement accounts, there are no contribution limits, no income restrictions, and no penalty for withdrawing money at any time.
Key features
- No contribution limits: deposit and invest as much as you want
- No withdrawal restrictions: sell and cash out anytime, no age requirement
- Taxable each year: dividends, interest, and realized capital gains are reported on your taxes in the year they happen
- Short-term vs. long-term gains: gains on positions held one year or less are taxed as ordinary income; longer holds qualify for lower long-term capital gains tax rates
- Wash sale rules apply: see Wash Sale Rule
- Tax-loss harvesting: losses can offset gains and up to $3,000 of ordinary income per year
Cash vs. margin
A brokerage account is usually either a cash account or a margin account. Cash accounts settle trades with money already in the account. Margin accounts allow borrowing against existing positions to buy more.
When to use a brokerage account
- Investing beyond retirement account limits
- Money you may need before retirement age
- Short-term trading and active strategies where flexibility matters
- Any investment that benefits from the lower long-term capital gains rate
Max out tax-advantaged accounts first (match on a 401(k), then Roth IRA, then HSA if eligible), then use a taxable brokerage account for everything else.