What is a brokerage account?
A brokerage account is an investment account you use to buy and sell securities like stocks, ETFs, and mutual funds. You open it with a licensed brokerage firm, add money, and use that cash to invest. Unlike a retirement account, a standard (taxable) brokerage account has no contribution limits and lets you withdraw anytime — but it doesn’t carry the same tax advantages.
How does a brokerage account work?
You fund a brokerage account by transferring money from a bank account, then use those funds to buy investments. The securities you buy are held in the account, and you can sell them and withdraw the proceeds whenever you like — there’s no age requirement or withdrawal penalty as there is with a retirement account.
The trade-off for that flexibility is taxes. A standard brokerage account is a taxable account: when you sell an investment for a gain or receive dividends, those are generally taxable in the year they’re realized — that is, the year you sell for a profit or receive a dividend (as capital gains or dividend income). It’s worth understanding this before you invest, and a tax professional can speak to your specific situation.
What are the types of brokerage accounts
Brokerage accounts are classified three ways:
- By who owns the account (individual, joint, or custodial),
- By how trades are funded (cash or margin), and
- By how it’s taxed (taxable or tax-advantaged).
Any single account has all three characteristics at once.
| Dimension | The options |
| Who owns it | Individual — one owner. Joint — shared, often between spouses. Custodial — an adult invests on behalf of a minor. |
| How trades are funded | Cash — you invest only money you’ve deposited. Margin — you can also borrow against your holdings (more below). |
| Tax treatment | Taxable — a standard brokerage account. Tax-advantaged — retirement accounts like a Traditional IRA or Roth IRA — which are technically brokerage accounts but trade tax benefits for contribution and withdrawal (see brokerage account vs. IRA) |
Cash account vs. margin account
The difference comes down to whether you’re investing your own cash or borrowing:
- Cash account. You buy investments using only the money you’ve deposited. Straightforward, and there’s no borrowing risk.
- Margin account. You can borrow against the value of the eligible securities in your account — at M1, this is a portfolio line of credit through M1 Borrow (standard Reg T margin). Borrowing on margin involves added risk, including the possibility of losing more than your initial investment and having securities sold to meet a margin call, so it isn’t right for everyone. You can read the basics in introduction to margin trading.
Brokerage account vs. retirement account: which do you need?
It’s not either/or — investors may use both. A taxable brokerage account can offer flexibility (no contribution limits, withdraw anytime), while a retirement account like an IRA may offer tax advantages in exchange for contribution limits and withdrawal rules.
Some first-time investors start with a taxable individual brokerage account for its simplicity and flexibility, then add a tax-advantaged retirement account as their goals take shape — but the right mix depends on your own goals and time horizon. For a full side-by-side, see brokerage account vs. IRA.
How to open a brokerage account
Opening a brokerage account is usually quick — often just a few minutes online. The general steps:
- Choose a brokerage and account type.
Account types differ in tax treatment, flexibility, and eligibility rules, so the right one depends on your own situation.
- Open and fund the account.
By linking a bank account and transferring money.
- Choose your investments.
The cash sits uninvested until you buy something, so pick investments aligned with your goals and risk tolerance.
With M1, you can open an individual brokerage account in minutes: set your target allocation, and M1 automatically directs your deposits toward it, buying the fractional shares that fit. M1 charges a flat platform fee — not a per-trade commission and not a percentage-of-assets management fee — and other fees may apply; see the M1 Fee Schedule for current amounts.
The M1 bottom line
A brokerage account is the basic building block of investing outside of an employer plan — a flexible, taxable account you can use to buy and sell securities on your own schedule. It doesn’t carry the tax advantages of a retirement account, but it also has none of the contribution or withdrawal restrictions. Like any investment account, its value can rise or fall, including the possible loss of principal.
When you’re ready, you can open a brokerage account with M1.
Frequently asked questions about brokerage accounts
It’s an investment account you use to buy and sell securities like stocks, ETFs, and mutual funds through a licensed brokerage. A standard brokerage account is taxable, with no contribution limits and no withdrawal penalties.
A bank account holds cash (and may be FDIC-insured); a brokerage account holds investments you buy, whose value can go up or down. Brokerage accounts are protected by SIPC (which covers securities if the brokerage fails — it does not protect against investment losses).
Yes — they differ by ownership (individual, joint, custodial) and by how you pay for trades (cash vs. margin). Retirement accounts like IRAs are tax-advantaged brokerage accounts with their own rules.
No. A standard taxable brokerage account has no annual contribution limit and no income limit — that’s a key difference from a retirement account like an IRA. Gains and dividends are generally taxable in the year realized.
Securities and cash held at a member brokerage are protected by SIPC — up to $500,000 total, including $250,000 for cash — if the brokerage firm fails. Importantly, SIPC does not protect against market losses: the value of your investments can still fall. This is different from FDIC insurance, which covers bank deposits. Investing involves risk, including the possible loss of principal.
Investing involves risk, including the possible loss of principal. This content is educational and is not personalized investment, tax, or legal advice. M1 does not provide tax advice; consult a qualified professional about your situation. Borrowing on margin involves additional risks, including the possible loss of more than your initial investment. Brokerage products are offered by M1 Finance LLC, member FINRA/SIPC.
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