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What Is an Investment Account? 5 Types to Know
5 Types of Investment Accounts You Should Know
The right type of investment account will accommodate your savings goals, investing style and account ownership wishes.
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What is an investment account? Types of investment accounts Types of investment accounts How to choose an investment account How to Start Investing in Stocks Individual Retirement Account (IRA): What It Is & How It Works The Best Index Funds and How to Start InvestingWhat is an investment account?
An investment account is an account where you can buy investments such as stocks, bonds and funds. You add money to the account, then purchase investments with it. You contribute to an investment account in hopes that the companies you buy into grow in value, and therefore grow the money in your account.Types of investment accounts
There are several types of investment accounts, each with its own purpose. This guide will help you find the best one for you.1. Brokerage accounts
A standard brokerage account — sometimes called a taxable brokerage account or non-retirement account — can provide access to a broad range of investments, including stocks, mutual funds, bonds, exchange-traded funds and more. Any interest or dividends you earn on investments, as well as any gains on investments that you sell, are subject to taxes in the year that the money is received. Unlike some retirement accounts, you also have a choice in how a brokerage account is owned. An individual taxable brokerage account is opened by an individual who retains ownership of the account and will be solely responsible for the taxes generated in the account. A joint taxable brokerage account, on the other hand, is shared by two or more people — typically spouses, but it can be opened with anyone, even a non-relative. individual taxable brokerage account joint taxable brokerage account When you open a brokerage account, the firm will probably ask you whether you want a cash account or a margin account. A cash account is appropriate for most investors. It allows you to purchase investments using the money you deposit into the account. A margin account is designed for investors who wish to borrow money from their broker to purchase investments. Margin trading is a riskier form of investing best suited for advanced traders. Eligibility: You must be a legal adult (at least 18 years old) and have a valid Social Security number or tax ID number, along with other forms of identification. Eligibility: Good to know: There are no limits on how much money you can contribute to a taxable brokerage account, and money can be withdrawn at any time, although you may owe capital gains taxes if the investments you sell to cash out have increased in value. Good to know: » Get started: View our list of the best brokerage accounts » Get started: Brokerage firms Learn more Learn moreon Charles Schwab's website
Learn more Learn moreon E*TRADE's website
Learn more Learn moreon Vanguard's website
Learn more Learn moreon Fidelity's website
2. Retirement accounts
Retirement accounts typically have tax benefits to help you save for, you guessed it, retirement. Common types of retirement accounts are traditional IRAs and Roth IRAs, which you can open on your own at an online broker, similar to how you'd open a brokerage account. However, employers often offer 401(k) plans or other employer-sponsored retirement plans. These plans typically have higher contribution limits, and many employers match a portion of the money you save in that account. If you have access to a workplace retirement account that matches your contributions, contribute to that before an IRA. traditional IRAs Roth IRAs 401(k) plans The biggest difference between a retirement account and a brokerage account is how the IRS taxes — or doesn’t tax — contributions, investment gains and withdrawals. Depending on the type of IRA or 401(k), you either get an upfront tax break in the year you make contributions to the account (with traditional IRAs or 401(k)s) or a back-end tax break that makes your withdrawals in retirement tax-free (with Roth IRAs or Roth 401(k)s). Roth 401(k)s are less common than traditional ones, but employers are increasingly offering both options. Note that many brokers also offer specialty retirement savings accounts for small-business owners and self-employed individuals. The most common options are SEP IRAs, SIMPLE IRAs and Solo 401(k)s. If you want a full breakdown, read our overview of the main types of self-employed retirement accounts. Eligibility: Your employer will set workplace eligibility rules for its plan, within certain IRS guidelines. You must have earned income (or a spouse with qualified earned income) to be eligible to make an IRA contribution. There are also income limits for contributing to a Roth IRA and for deducting contributions to a traditional IRA. Joint IRAs are not allowed. Eligibility: Good to know: The maximum an individual is allowed to contribute to an IRA is $7,500 for 2026 ($8,600 if aged 50 and older). Per IRS rules, there may be taxes and penalties for dipping into IRAs before age 59 ½. If you think you’ll need access to the money early, the Roth IRA provides more penalty-free options. Good to know: $7,500 for 2026 ($8,600 if aged 50 and older) $7,500 for 2026 ($8,600 if aged 50 and older) » Get started: Find the best IRA for you » Get started:3. Investment accounts for kids
The accounts above require the owner to be at least 18 years old. But what about investment accounts for the young Warren Buffett in your life? There are two notable options to accommodate minors: This investment account is set up for a minor, funded by money gifted to the child. An adult (the custodian) maintains control of the account and transfers assets to the child when they reach the “age of majority,” which is either 18 or 21, depending on state law. Two types of custodial accounts are the Uniform Gift to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA). The difference is the type of assets you’re allowed to contribute to the account. UTMAs can hold real estate, in addition to the typical investments allowed in both account types (cash, stocks, bonds, mutual funds). Once the money is in the account, it cannot be transferred to another beneficiary. (UGMA) (UTMA) Eligibility: A child does not need earned income for these accounts. Some states allow UGMAs, some allow UTMAs, and some allow both. A broker can determine whether your state allows you to open one for a beneficiary. Eligibility: Good to know: Unlike money in an education account, money put into a UGMA or UTMA can be used for any purpose, not just college tuition. Be aware that if the child applies for financial aid, the assets in a custodial account are considered the student’s and can affect their eligibility and the amount of aid they receive. Good to know: » Learn more about how UTMAs and UGMAs work » If a child has earned income, they are eligible to contribute to a Roth or traditional IRA. The account is set up and maintained by an adult who transfers it to the child when they turn 18 or 21. Eligibility: The earned income can come from anything, including babysitting, an informal lawn-mowing business or Instagram sponsorships, as long as it is reported to the IRS. Eligibility: Good to know: In a Roth IRA, contributions — but not investment earnings — can be pulled out at any time without incurring income taxes or an early withdrawal penalty. Good to know: » Get started: See our list of the best custodial accounts » Get started:4. Education accounts
One of the most popular types of accounts for paying for education expenses is the 529 savings plan. (This is different from 529 prepaid tuition plans that let you lock in the in-state public tuition at the institution that runs the plan.) Most states offer their own 529 plans that you can open directly; typically, the money can be used at eligible schools nationwide. Some brokerages also allow you to open a 529 account. Another education savings option is the Coverdell Education Savings Account (ESA). An ESA must be set up before the beneficiary is 18, and, like 529s, the money can be used for college, elementary and secondary education expenses. Eligibility: Relative or not, anyone can contribute to these plans on behalf of a beneficiary. And anyone can be named a beneficiary of the account, as long as the funds are used for qualified education expenses. Eligibility: Good to know: Contributions to 529s and ESAs are not tax-deductible (though you might get a state tax deduction on 529 contributions), but qualified distributions are tax-free. Good to know:5. ABLE accounts
ABLE accounts are similar to 529 accounts, but were created specifically for people with disabilities. These tax-advantaged accounts allow individuals to put money into an investment account that can be withdrawn for disability-related expenses. ABLE accounts also protect those with disabilities from losing access to public benefits such as Medicaid. Much like a 529 (ABLE accounts are also known as 529A accounts), investment gains are tax-deferred, and withdrawals are tax-free if used for qualified expenses. Eligibility: If someone is currently receiving benefits from Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI), they're likely already eligible for an ABLE account. However, even if they're not currently receiving those benefits, if the onset of a disability occurs before age 46 and the condition receives a letter of certification from a physician and meets certain conditions, the individual may be eligible. Eligibility: Good to know: For account holders, known as "designated beneficiaries," the first $100,000 saved is exempt from the $2,000 SSI individual resource limit. Like 529s, ABLE account program details vary by state. Good to know:What's your financial need?
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Financial Planning Retirement Planning Investment Management Tax Strategy OtherWhat's your financial need?
Financial Planning Retirement Planning Investment Management Tax Strategy Other ADAdvertisement ADAdvertisement AD Advertisement ADAdvertisement ADAdvertisement AD AdvertisementAnswer a few simple questions
Get a recommended match
Start achieving your money goals