Individual retirement plans offer several tax benefits that make them more advantageous for saving for retirement than regular stock accounts. However, IRAs penalize you for withdrawing money early, while stock accounts offer the possibility of lower long-term capital gains rates. An estimated 9.5 million households had brokerage and IRA accounts. Brokerage accounts are more common among households with higher incomes.
Among the households of the richest 10 percent, half have these types of accounts. By comparison, only 2.8 percent of the poorest 25 percent reported that they had brokerage accounts. Traditional IRAs and brokerage accounts are two types of investment vehicles. While IRAs help investors save for retirement in a tax-efficient way, brokerage accounts usually offer more flexibility because they are not subject to the same rules that affect IRAs.
Which one is best for you depends on your needs, goals and time horizon. A financial advisor can help you choose between the two options and determine the best way to invest your money to meet your financial goals. For example, if you own an income investment fund that invests in dividend stocks, you won't have any annual tax liability associated with those dividends. Only about half of American families participate in any way in the stock market, according to research by the Holy See.
A brokerage account allows investors to buy and sell securities, such as stocks, bonds, mutual funds, exchange-traded funds, and real estate investment trusts. Even a modest contribution will increase over time if you invest in stocks, mutual funds, or exchange-traded funds (ETFs). When it comes to individual investments, an IRA can contain a wide range of securities, including stocks, bonds, mutual funds, exchange-traded funds, and other securities. In addition to investing in traditional securities, such as stocks and bonds, investors can use brokerage accounts to trade options or trade on margin using funds borrowed from the broker.
When it comes to the millennial generation (23 to 3 years old), about 60% have no direct or indirect exposure to the stock market.