A brokerage account is an account that lets you buy and sell investments — stocks, ETFs, mutual funds, bonds, and more. It’s the foundation of investing outside of retirement accounts. Here’s everything you need to know.
Brokerage account vs retirement account
The key difference is taxes and flexibility:
- Retirement accounts (401k, Roth IRA): Tax advantages — either tax-deferred growth or tax-free withdrawals. But there are contribution limits and rules about when you can take money out without penalties (generally not before 59½).
- Brokerage account (taxable account): No tax advantages — you pay taxes on dividends and capital gains. But no contribution limits, no rules about when you can withdraw, and you can invest in anything available on the platform. Full flexibility.
The right order: get employer 401k match, fund a Roth IRA, then open a brokerage account with anything beyond that.
How taxes work in a brokerage account
- Dividends: Taxed as income in the year you receive them
- Capital gains: When you sell an investment for more than you paid, the profit is taxed. Hold for over a year and you pay the lower long-term capital gains rate (0%, 15%, or 20% depending on income). Hold for under a year and gains are taxed as ordinary income.
This is why buy-and-hold investing is more tax-efficient than frequent trading.
Best brokerage accounts to open
- Fidelity. No account minimums, fractional shares, excellent zero-fee index funds. Best all-around for beginners.
- Charles Schwab. No minimums, solid tools, strong customer service.
- Vanguard. Best for long-term index fund investors, slightly less beginner-friendly interface.
How to open one
Go to Fidelity.com or Schwab.com, click “Open an Account,” select “Brokerage Account” (not IRA), fill in your personal information including Social Security number, link your bank, and you’re done in about 10 minutes. Fund it, buy a total market index fund, and start building.