Brokerage Account vs. IRA: What's the Difference?

Brokerage Account:

Investments in a brokerage account are subject to capital gains tax on any profits earned when selling an investment. Dividends and interest income are also taxable in the year they are received.

Traditional IRA:

Contributions to a traditional IRA may be tax-deductible, depending on your income level and whether you are covered by an employer-sponsored retirement plan. Any earnings within the account grow tax-deferred until you withdraw the funds in retirement, at which point they are taxed as ordinary income.

Roth IRA:

Contributions to a Roth IRA are made with after-tax dollars, meaning they are not tax-deductible. However, earnings grow tax-free, and qualified withdrawals in retirement are also tax-free.

Brokerage Account:

There are no limits on the amount you can contribute to a brokerage account.

Traditional IRA:

The contribution limits for 2024 are $7,000 per year, or $8,000 for those aged 50 or older.¹ The IRS may change these limits annually because of inflation adjustments.

Roth IRA:

The contribution limits for 2024 are $7,000 per year, or $8,000 for those aged 50 or older.¹ The IRS may change these limits annually because of inflation adjustments.

Brokerage Account:

You can withdraw funds from a brokerage account at any time without any penalties. However, you will be subject to capital gains tax on any profits earned from your investments.

Traditional IRA:

Withdrawals from a traditional IRA are allowed without penalty starting at age 59½. Early withdrawals (before age 59½) are subject to a 10% penalty in addition to regular income tax, unless an exception applies.

Roth IRA:

You can withdraw your contributions (but not earnings) from a Roth IRA at any time without penalty or taxes. Earnings can be withdrawn tax-free and penalty-free after age 59½, as long as the account has been open for at least five years. Early withdrawals of earnings may be subject to taxes and a 10% penalty unless an exception applies.

*You may incur a sales charge depending on the type of investment.

Brokerage Account:

Investors can generally invest in a wide range of assets, including stocks, bonds, mutual funds, ETFs, and more.

Traditional IRA:

IRAs offer a variety of investment options, but there may be certain restrictions on exotic or high-risk investments in certain retirement accounts.

Roth IRA:

IRAs offer a variety of investment options, but there may be certain restrictions on exotic or high-risk investments in certain retirement accounts.