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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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Dayana is a former NerdWallet authority on investing and retirement. She has written for The Associated Press, The Motley Fool, Woman’s Day, Real Simple, Newsweek, USA Today and more. She has written and contributed to several personal finance books and has been interviewed on the "Today" Show, "Good Morning America," NPR, CNN and other outlets.

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Dayana is a former NerdWallet authority on investing and retirement. She has written for The Associated Press, The Motley Fool, Woman’s Day, Real Simple, Newsweek, USA Today and more. She has written and contributed to several personal finance books and has been interviewed on the "Today" Show, "Good Morning America," NPR, CNN and other outlets.

Arielle O'Shea

Head of Content, Investing & Taxes

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19 years of experience

Expertise

• Retirement planning
• investment management
• investment accounts

Arielle O’Shea leads the investing and taxes team at NerdWallet. She has covered personal finance and investing for nearly 20 years, and was a senior writer and spokesperson at NerdWallet before becoming an editor. Previously, she was a researcher and reporter for leading personal finance journalist and author Jean Chatzky, a role that included developing financial education programs, interviewing subject matter experts and helping to produce television and radio segments. Arielle has appeared on the "Today" show, NBC News and ABC's "World News Tonight," and has been quoted in national publications including The New York Times, MarketWatch and Bloomberg News. She is based in Charlottesville, Virginia.

Published in

Head of Content, Investing & Taxes

Arielle O’Shea leads the investing and taxes team at NerdWallet. She has covered personal finance and investing for nearly 20 years, and was a senior writer and spokesperson at NerdWallet before becoming an editor. Previously, she was a researcher and reporter for leading personal finance journalist and author Jean Chatzky, a role that included developing financial education programs, interviewing subject matter experts and helping to produce television and radio segments. Arielle has appeared on the "Today" show, NBC News and ABC's "World News Tonight," and has been quoted in national publications including The New York Times, MarketWatch and Bloomberg News. She is based in Charlottesville, Virginia.

What 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.

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.

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.

» Get started: View our list of the best brokerage accounts

Brokerage firms

on Charles Schwab's website

on E*TRADE's website

on Vanguard's website

on 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.

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.

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.

» Get started: Find the best IRA for you

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.

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.

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.

» 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.

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.

» Get started: See our list of the best custodial accounts

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.

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.

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.

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.

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How to choose an investment account

When picking an investment account, you'll want to consider your savings goals, time horizon, eligibility and who you want to retain ownership of the account. Most financial institutions offer, at a minimum, standard brokerage accounts and IRAs. Many also offer education savings accounts and custodial accounts.

If you want to pick and manage your investments on your own, opening an account at an online broker is the way to go. (Here’s our list of the best online brokers for beginner investors.)

If you want someone to manage your money, a robo-advisor is a low-cost, automated portfolio management service that charges a small fee to oversee your investment portfolio. (Here's our list of the top robo-advisors.)

Types of accounts

Types of accounts