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Brokerage account vs. Roth IRA: How do they compare?
Key differences in contribution limits, investment options and tax advantages.
Brokerage accounts and Roth individual retirement accounts (IRAs) are two investment account options for individuals looking to grow their money.
However, these two accounts vary in terms of tax structure, contribution limits and the available investment options. Find out more about how these accounts differ to see which is right for you.
Brokerage account vs. Roth IRA: A quick comparison
| Brokerage account | Roth IRA | |
|---|---|---|
| Where to open | Registered broker-dealers | Brokers, banks or other financial institutions |
| Investment options | All assets are permitted inside a brokerage account The broker determines available investment options | All assets are permitted inside an IRA except collectibles and life insurance The IRA custodian determines available investment options |
| Income limits | None | Individuals filing as single and head of household. Contribute up to $7,000 if your 2024 modified adjusted gross income (MAGI) is under $146,000; individuals with a MAGI above $146,000 can contribute a reduced amount until contributions are phased out upon reaching a MAGI of $161,000 Married couples filing jointly. |
| Contribution limits | None | $7,000 for those under age 50 $8,000 for those age 50 and over |
| Eligibility requirements | None | No age requirements, but you need earned income to contribute Income limits apply |
| Who can contribute | Anyone | Anyone with earned income, so long as their income doesn’t exceed a certain threshold |
| Tax advantages | None | Earnings grow tax-free Qualified withdrawals are tax-free |
| Withdrawal restrictions | None | Withdrawals of earnings before age 59.5 from a Roth IRA you’ve held less than five years will incur taxes and penalties (exceptions apply) Withdrawals of earnings after age 59.5 from a Roth IRA you’ve had more than five years will be subject to taxes but not penalties |
| Required minimum distributions (RMDs) | None | None |
| FDIC insurance | Brokerage accounts that contain bank deposits such as certificates of deposit (CDs), savings accounts or money market accounts are insured up to $250,000 | Roth IRAs that contain bank deposits such as CDs, savings accounts or money market accounts are insured up to $250,000 |
| SIPC insurance | SIPC insures cash and securities up to $500,000 at SIPC-member brokers | SIPC insures cash and securities up to $500,000 at SIPC-member brokers |
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| Learn more about Roth IRAs |
Brokerage account vs. Roth IRA: Which one’s better?
Brokerage accounts and Roth IRAs are both accounts in which individuals can invest in a range of assets, but their tax structures differentiate these accounts the most.
When to consider a brokerage account.
A brokerage account may be a good option if you:
- Maxed out your IRA contributions. Many individuals turn to a brokerage account after maxing out an IRA if they have more money to invest and want a wider range of options than their 401(k) offers.
- Want unrestricted access to your money. Unlike Roth IRAs, which have withdrawal restrictions, brokerage account funds are accessible at any time.
- Want to invest in assets not available in a Roth IRA. While the law allows all assets in a Roth IRA except life insurance and collectibles, some IRA providers restrict assets that may otherwise be available in a taxable brokerage account. For instance, while investments such as cryptocurrency and options are allowed in an IRA, many brokers don’t offer access to these assets. You’re more likely to get access to these assets through a brokerage account.(1)
When to consider a Roth IRA
Consider a Roth IRA if you:
- Want to save for retirement and enjoy tax benefits. Qualified withdrawals from a Roth IRA are tax-free.
- Have $7,000 to invest. Contribute up to $7,000 in total across all your Roth IRAs and traditional IRAs in 2024.
- Want matching contributions. Robinhood offers IRA matches. Robinhood will match up to 3% on IRA contributions when you subscribe to Robinhood Gold or 1% when you don’t.
The similarities between a brokerage account and a Roth IRA
Brokerage accounts and Roth IRAs differ most in their tax structure, where brokerage account earnings are taxable, and Roth IRA earnings are not.
Brokerage accounts and Roth IRAs share these similarities:
- Trading platforms. If you open an IRA with a broker, you’ll have access to the same trading platform and tools available to taxable brokerage accounts with the same broker.
- Investment options. Invest in stocks, bonds, exchange-traded funds (ETFs), mutual funds and more in IRAs and brokerage accounts.
Brokerage account vs. Roth IRA: Where to open these accounts
Brokerage accounts and Roth IRAs are available at many banks, brokers and other financial institutions. Most brokers that offer brokerage accounts typically offer IRAs as well. The best stock trading apps offer brokerage accounts, Roth IRAs and other account types, letting you invest for different goals all under one roof.
Alternatives to brokerage accounts and Roth IRAs
While brokerage accounts and Roth IRAs are great options to trade and invest, other accounts may be more appropriate depending on your goals:
- Traditional IRA. Consider this type of IRA if you want to save for retirement and benefit from a tax deduction in the year in which you make your contributions. Since you pay taxes on your money when you begin taking withdrawals, a traditional IRA may be a good option if you think you’ll be in a lower tax bracket at retirement. The best IRA accounts offer flexible investment options, low fees and research tools and educational resources to help you invest.
- High-interest savings accounts. Consider a high-yield savings account if you want easy access to cash savings for an emergency fund.
Compare brokerages that offer IRA accounts
Narrow down top brokers by annual fee, stock trade fee and more to find the best for your budget and financial goals.
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Frequently asked questions
Is it better to withdraw from an IRA or a brokerage account?
Withdraw Roth IRA contributions at any time tax- and penalty-free since you already paid taxes on this money. However, withdrawing earnings before age 59.5 may trigger a 10% early withdrawal penalty. Meanwhile, withdraw money from a brokerage account at any time without penalty. However, you will have to pay capital gains tax on realized gains.
What is the biggest disadvantage of a brokerage account?
The biggest disadvantage of a brokerage account may be its lack of tax advantages.
Are brokerage accounts worth it?
Brokerage accounts may be worth it if you want to invest outside your retirement savings or have more money to invest than what’s allowable in an IRA each year.
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