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What Are the Different Brokerage Account Types?

Are you uncertain what type of account suits you and your investing style or objectives? Or perhaps you weren’t aware there were multiple types? No matter where you are in your investing journey, it all starts with a brokerage account.

Here we will cover the differences between accounts, such as cash and margin accounts. Furthermore, we will cover the various account types that investors can open. Whether you're looking to open a brokerage account for yourself, retirement, a joint account, or your business, we've laid out the basics of each type.

1Only U.S.-based accounts.

2All IRAs at tastytrade are provisioned as limited margin accounts by default to allow suitable investors to trade defined-risk options trades and futures. Click here to learn more.

Individual Accounts

An individual account is an account type owned by one person, as its name suggests. Applicants can choose between a cash or margin account when opening an individual brokerage account at tastytrade.

Like all other account types at tastytrade, there is no minimum to open a brokerage account, except for margin account holders seeking to gain margin privileges, which refers to the ability to borrow cash and collateralize against other marginable positions to establish new positions.

At tastytrade, we offer three individual margin account trading levels and portfolio margin to eligible margin account holders. Cash accounts only have one trading level. Please visit the tastytrade Help Center to learn more about the available trading levels at tastytrade.

Individual Retirement Accounts (IRAs)

Are you looking to invest for your golden years by establishing an individual retirement account (IRA) at tastytrade? Or are you looking to roll over an employer-sponsored 401(k), 403(b), or 457(b) so that you can manage your retirement account yourself? tastytrade offers various retirement accounts for all types of investors. However, do you know which retirement account to open based on your financial situation, or did you not know there were various retirement accounts available? In this section, we've laid out the basics of all the retirement accounts available to investors at tastytrade.

It's important to note that only US-based investors may open an IRA, as any potential tax benefits of having an IRA apply to US-based investors only. Moreover, each investor's financial situation is unique, so it's good practice to consult a tax professional to determine what type of IRA may suit you.

Unique Characteristics of IRAs

Unlike other account types, IRAs do not allow investors access to leverage. In other words, IRAs do not have access to any margin privileges. This restriction is not exclusive to IRs at tastytrade as this is industry standard. That said, IRAs at tastytrade are provisioned as limited margin accounts, allowing suitable investors to trade multi-leg options spreads and futures products with a minimum account balance.

Before diving in, let's break down some IRA-specific lingo surrounding cash movements. In short, the IRA has specific terminology when referring to cash movements to and from an IRA account, so knowing the vocabulary will keep you in the know when you see either term used when referring to an IRA.

  • Contributions = Deposits
    • Current year contribution: a deposit coded to the current tax year
    • Prior year contribution: a deposit coded for the prior tax year only allowed up to the Tax Day
  • Distributions = Withdrawals
    • A qualified distribution is a withdrawal type that is not subject to tax penalties
    • A non-qualified distribution is a withdrawal type that may be subject to tax penalties
  • Non-qualified account = non-IRA
  • Qualified account = IRA

IRAs are subject to contribution limits. However, investors 50 or older may contribute more to their IRAs, also referred to as a "catch-up" contribution. Both Roth and traditional IRA holders can contribute up to their contribution limit by the following calendar year's tax day. For example, an investor looking to max out their Roth or traditional IRA contribution for the 2023 tax year has until Tax Day 2024 to contribute for the 2023 tax year. Make sure you correctly indicate the contribution year in the deposit slip. Contribution limits can change yearly, so please check the tastytrade Help Center for the latest contribution limits and prior-year contribution deadlines.

Lastly, tax treatment in an IRA differs from taxable accounts like an individual or joint account. So be sure to talk to a tax professional if you have questions related to your specific tax situation.

Roth IRA

A Roth IRA is widely known as a "post-tax" retirement account since an investor makes contributions with after-tax money. Those who reach retirement age can withdraw from their account tax-free (also known as a qualified distribution). In other words, any gains in the account will grow tax-free. Moreover, investors can withdraw qualified contributions tax-free and penalty-free, even before retirement age.

Unlike traditional IRAs, a Roth IRA does not have required minimum distribution (RMD) rules. As a result, account holders can keep positions and funds in the account for as long as they want and do not have to take distributions from the account after reaching a specific retirement age. However, there are some limitations to opening a Roth IRA. For one, Roth IRAs have adjusted gross income (AGI) limits, which can impact contribution eligibility. The AGI limit may change. Please check the limit set for every year.

Like other IRAs, they also have contribution limits and deadlines. This means you can only contribute a certain amount of money to your Roth IRA account each year.

We aren’t tax advisors at tastytrade so it is important to consult with a qualified tax advisor to determine your tax status prior to opening a Roth IRA. Tax laws are dynamic and can change at both the federal and state levels. The content provided here is for informational purposes only and does not constitute tax, legal, or accounting advice.

Traditional IRA

Traditional IRAs are also known as "pre-tax" retirement accounts, as they allow investors to make tax-deductible contributions. Moreover, distributions performed over a calendar year will get taxed as income. Distributions may be subject to a 10% additional tax if the investor is under age 59½. This is known as an early distribution penalty.

When a traditional IRA holder reaches a specific age, they must initiate the required minimum distributions (RMDs) from the account. The RMD age and amount may vary year-over-year due to changes to tax rules. RMDs can be transferred to your bank account via ACH, wire*, check*, or internally transferred to an individual account. Account holders can even designate a charity. Please visit the tastytrade Help Center to learn more about RMDs processing at tastytrade.

*Subject to an additional fee. Please visit the tastytrade Commissions and Fees page for a complete fee schedule.

SEP-IRA

Do you own a business, or are you self-employed? If you want to save and invest for retirement, tastytrade offers a Simplified Employee Pension Plan (SEP-IRA). One main differentiator of a SEP-IRA is that it can have a larger contribution limit when compared to a traditional or Roth IRA. SEP-IRA contribution limits use a set percentage of earnings from self-employment up to a certain dollar amount instead of a blanket limit that applies to traditional or Roth IRAs.

Please visit the tastytrade Help Center to learn about the latest contribution limit, which can vary each calendar year. Additionally, tastytrade SEP-IRA holders must initiate contributions in the calendar year for the tax year they want a contribution coded toward. For example, investors must initiate a 2023 SEP-IRA contribution before the end of the calendar year for 2023 contributions. Please visit the tastytrade Help Center to view the latest deadlines for the current tax year. As a result of the higher contribution limits afforded for SEP-IRAs, there are some limitations and conditions, which include but are not limited to:

  • Contributions must come from the employer or the owner of the business
  • The account holder must be self-employed or own a small business with one or more employees
  • The account holder must have earned income in the calendar year from the business for the tax year they want to contribute towards
  • SEP-IRAs require annual contributions for each tax year, including when the business experiences a downturn

Regardless of your financial situation, it is always best to consult a tax professional to determine how rules surrounding SEP-IRAs can generate any potential tax consequences.

What is a Roth Conversion?

A Roth conversion is when an investor converts a traditional IRA to a Roth IRA. The traditional IRA's value will generally be taxed as a distribution when fully converting to a Roth IRA. Despite getting taxed upfront, the account can then grow potentially tax-free.

At tastytrade, there is no additional cost when performing a Roth conversion, but investors need to keep in mind the potential tax implications. It's best practice to consult a tax professional beforehand. A traditional IRA will generate a Form 1099-R to account for the distribution caused by the Roth conversion. Investors can either do a full or partial conversion of a traditional IRA to a Roth IRA. Please visit the tastytrade Help Center to learn more about the Roth conversion process at tastytrade.

What is a Rollover IRA?

When exploring IRAs, you may hear the term "rollover" thrown around. A rollover is not an account type, per se. Instead, a rollover usually refers to transferring funds from an employer-sponsored retirement plan, like a 401(k), 403(b), or 457(b), to an IRA. By performing a rollover, investors can potentially avoid any tax consequences and penalties on the distribution from an employer-sponsored retirement plan. In most cases, the employer-sponsored retirement plan service provider will issue a check so you can deposit it into a traditional or Roth IRA.

Before initiating a rollover and opening a tastytrade IRA, we strongly advise checking with your employer-sponsored retirement plan service provider to see whether it was a pre-tax or post-tax retirement plan. Generally, a pre-tax retirement account will roll over into a traditional IRA, and a post-tax retirement plan into a Roth IRA.

Lastly, it's important to note that each investor's financial situation is different and that there are rules and limitations regarding rollovers. It's best to consult a tax professional to determine what type of IRA is right for you when performing a 401(k)/403(b) rollover to tastytrade.

Please visit the tastytrade Help Center to learn more about the rollover process at tastytrade.

Joint Accounts

Do you plan on trading with a partner, spouse, family member, etc., and want an account owned by both individuals? If this sounds like what you need, a joint brokerage account could be what you're looking for. Investors at tastytrade have access to two joint account types:

  1. Joint Tenants in Common (JTIC)
  2. Joint Tenants with Rights of Survivorship (JTWROS)

Investors looking to open a joint account can open it as a cash or margin account. However, joint accounts cannot be opened as retirement accounts as there is no "joint retirement" account type.

While opening a joint account can allow multiple investors to pool assets together to invest and trade, potential tax implications can affect both parties since there are two owners. It is always best practice to consult a tax professional to determine what potential tax liabilities lie ahead and whether a joint account is proper for you and your financial situation.

Please visit the tastytrade Help Center to learn more about the joint account opening process.

Joint Tenants in Common (JTIC)

A Joint Tenants in Common (JTIC) is a joint account type where each owner can specify an ownership percentage of the account. During the JTIC application process, applicants can determine the ownership percentage for each owner. An applicant may open a JTIC account as cash or margin. Refer to our trading levels page for a refresher on what products and trading strategies are available.

If one of the owners in a JTIC account passes away, a specified percentage of the account would pass on to the deceased person's estate, while the remaining portion would pass to the other surviving owner.

Does a JTIC sound like the account you want to open? Check out the tastytrade Help Center to learn more about the joint account opening process.

Joint Tenants With Rights of Survivorship (JTWROS)

A Joint Tenants With Rights of Survivorship (JTWROS) account type is where each joint owner has an equal share (50%/50%) of the account. If one of the account owners passes away, the account will transfer to the surviving party. While JTWROS accounts are commonly associated with married couples, it is not exclusive to those bound by marriage. Investors seeking an account type owned by two individuals who want an automatic arrangement to pass the assets onto the other owner in the event of a passing may also seek JTWROS accounts.

Applicants may open a JTWROS account as cash or margin. Refer to our trading levels page to get refreshed on what products and trading strategies are available.

Does a JTWROS sound like the account you want to open? Check out the tastytrade Help Center to learn more about the joint account opening process.

An Important Note About Joint Accounts

Are you looking for a way to have an individual brokerage account but allow another individual access to trade or manage positions on your behalf? If so, establishing a Limited Trading Authority (LTA) to an individual account may be more suitable than a joint account.

Please visit the tastytrade Help Center to learn more about granting access to a brokerage account you own with LTA access.

Business Accounts

Do you own a business and want to establish a brokerage account on behalf of it? Or do you own a company that focuses on trading or investing? Regardless of what line of business you're in, tastytrade offers a wide array of business account types. The three main types of business accounts are:

  1. Corporate Accounts
  2. Limited Liability Company (LLC)
  3. Partnership

Business accounts at tastytrade can either be a cash or margin account. Business margin account holders can also apply and enable portfolio margin, allowing additional leverage for eligible margin account holders.

In this section, we will break down the basics of each business account type and what you may need ahead of time to ensure that you can fill out your application without a hitch. Before opening any business account, it is always best to consult a tax professional to see what potential impacts can occur when trading or investing on behalf of your business.

Corporate

Whether you own a business structured as a corporation that sells lemonade or have a company focusing on trading or investing, tastytrade offers two corporate business account types:

  1. C-Corp – A C-Corp is an established legal entity authorized by a US state to conduct business. C-Corps pay income taxes at the corporate level.
  2. S-Corp – An S-Corp is an established legal entity authorized by a US state to conduct business. An S-Corp does not pay income taxes at the corporate level and has 100 shareholders or less.

Investors opening a corporate account at tastytrade can open them as cash or margin. Please visit our trading levels page to learn more about the available strategies and products.

The tastytrade Help Center details the entire entity application flow, the documents, and the information required when applying for a corporate account at tastytrade.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) is an entity that allows owners to separate personal assets from their business assets. Generally, forming an LLC transfers any liability from the owner to the entity, thus limiting the liability to the LLC owner. tastytrade offers LLC accounts for LLC business owners looking to open a brokerage account to invest or trade on behalf of it.

Investors should always consult with a tax professional before establishing any LLC and opening a tastytrade brokerage account on behalf of it to determine what potential tax impacts may arise because of trading or investing.

LLC applicants can open them as cash or margin at tastytrade. Please visit our trading levels section to learn more about the available strategies and products.

The tastytrade Help Center details the entire entity application flow, the documents, and the information required when applying for a corporate account at tastytrade.

Partnerships

A partnership is a business entity generally owned by two parties, such as two or more individuals, two or more entities, or even an individual and an entity. Due to the partnership's structure, the entity generally does not get assessed taxes from profits, losses, or income. Instead, they pass through to the partners of the entity. Business partnership owners looking to open a brokerage account to invest or trade within can open a partnership account at tastytrade.

Investors should always consult with a tax professional before establishing a partnership and opening a tastytrade brokerage account on behalf of it to determine what potential tax impacts may arise from trading or investing.

Investors opening a corporate account at tastytrade can open them as cash or margin. Please visit our trading levels page to learn more about the available strategies and products for investors in each level.

The tastytrade Help Center details the entire entity application flow, the documents, and the information required when applying for a corporate account at tastytrade.

Trust Accounts

Individuals seeking to ensure their assets are managed and distributed accordingly for beneficiaries may seek to set up a trust account. There are two trust account types available at tastytrade:

  1. Revocable Trust – As its name suggests, a revocable trust is a type of trust account allowing the grantor to change the terms or cancel the account. It is also commonly referred to as a "living trust."
  2. Irrevocable Trust – An irrevocable trust is a trust account type that does not allow any changes or modifications to the assets once transferred.

Trust account holders at tastytrade can invest or trade in various asset classes and implement various trading strategies based on their margin trading level.

While the structure of each trust can vary, trusts can help with estate planning by simplifying the distribution of a trust's assets to designated beneficiaries after the grantor passes away by avoiding probate court proceedings. Moreover, it is best practice to consult a tax professional to determine potential tax implications from trading or investing in a trust account.

FAQS

Are there account minimums for opening a tastytrade brokerage account?

At tastytrade, there is no minimum to open a cash or margin account. The money you need in your account will depend on the products and strategies you want to trade or invest in. For example, investors seeking margin privileges must have at least $2,000 in their securities account to qualify. Please visit the tastytrade Help Center to learn more about account minimums.

Is my money safe in a tastytrade brokerage account?

All registered broker-dealers in the United States must be a member of the Securities Investor Protection Corporation (SIPC), with some exceptions. What the Federal Depositor Insurance Corporation (FDIC) is to banks, SIPC is to US-based brokerage accounts.

Like the protection the FDIC provides for bank accounts, SIPC provides investors with protection of up to $500,000, comprising $250,000 in cash and $250,000 in securities positions.

It's worth noting that tastytrade does not hold customer assets. Instead, our clearing firm, Apex, holds customer assets and provides additional protection called Excess SIPC, which offers additional coverage for applicants with assets exceeding the SIPC limits. Moreover, SIPC and Excess SIPC protection apply to our entire customer base, regardless of whether you are a US-based customer or an international customer. Please visit the tastytrade Help Center to learn more about brokerage account coverage including Excess SIPC.

All investments involve risk of loss. Please carefully consider the risks associated with your investments and if such trading is suitable for you before deciding to trade certain products or strategies. You are solely responsible for making your investment and trading decisions and for evaluating the risks associated with your investments.

Trading on increased leverage can result in significant losses in the event of adverse market movements. 


tastytrade, Inc. (“tastytrade”) does not provide investment, tax, or legal advice. tastytrade’s website and brokerage services are not intended for persons of any jurisdiction where tastytrade is not authorized to do business or where such products and other services offered by the tastytrade would be contrary to the securities regulations, futures regulations or other local laws and regulations of that jurisdiction. Options involve risk and are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially significant losses. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Futures accounts are not protected by the Securities Investor Protection Corporation (SIPC). All customer futures accounts’ positions and cash balances are segregated by Apex Clearing Corporation. Futures and futures options trading is speculative and is not suitable for all investors. Please read the Futures & Exchange-Traded Options Risk Disclosure Statement prior to trading futures products.

Cryptocurrency transaction and custody services are powered by Zero Hash LLC and Zero Hash Liquidity Services LLC. Cryptocurrency assets are held and custodied by Zero Hash LLC, not tastytrade. Services may not be available in all states. Cryptocurrency assets are not subject to Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC) coverage. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

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