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Online Types of Trading Accounts 

February 14, 2023
Indicies trading

You’ve got some money set aside. It’s time to start managing it the right way so that its value continues growing. 

Opening a trading account could be a suitable solution for your wealth-building needs. 

Several online types of trading accounts are available, so it helps to know what the different options are to ensure you’re making the right choice. 

What Are the Different Trading Account Options? 

Knowing what kind of trading you want to do as an investor or trading is essential to ensure a suitable account is created for your activities. The good news is that you have plenty of options to consider when considering the various types you can use. 

Here is a closer look at the different choices you have when setting up a new account. The best ones for your needs should be based on eligibility, savings goals, and ownership retention. 

1. Taxable Brokerage Account 

This option is the standard account for most traders and investors. It is a non-retirement type that delivers a broad range of options. You can opt for stocks, bonds, mutual funds, ETFs, and others. 

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If you earn dividends or interest within this standard account, you’ll need to pay taxes on the gains in the year you receive the money. This issue also applies to any investment gains earned from sales. [1] 

It can be owned as an individual or a joint account. The latter is typically shared by spouses or domestic partners, but can apply to non-relatives.  

Most traders find a cash account appropriate for their needs as it lets them purchase items from deposited funds. Another way to trade is with margins, which allows for borrowing from the broker for an investment. 

There are no limits to what can be contributed to this trading account type. 

2. Retirement Account 

Retirement accounts include IRAs (individual retirement accounts) and specialty savings products like 401(k)s and 403(b)s. 

Some retirement accounts offer a tax-advantaged way to save money for the future by investing today. If you invest in a Roth IRA and meet the income qualifications, you use post-tax funds to start building wealth. When it’s time to withdraw funds, you won’t owe anything. 

The maximum amount you can contribute to an IRA in 2023 is $6,500 (or $7,500 if over age 50). Different restrictions apply to 401(k)-style investment options. [2] 

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3. Education Trading Accounts 

One of the most popular choices in this category is the 529 Savings Plan found in most states. You can open one directly, but the money in it is authorized for use at eligible schools across the country. 

Some traders might qualify for a 529 Prepaid Tuition Plan. This option is meant for in-state public tuition costs at the institution running it. 

An Education Savings Account (ESA) is the other type to consider in this category. It must be set up before the named beneficiary turns 18. Once established, the funds are usable for elementary, secondary school, or college expenses. [3] 

A few brokerages allow traders to open these accounts online.  

Anyone can contribute to a 529 plan if it is on behalf of the beneficiary. Anyone can be named as such on the account, assuming the funds are used for qualified education-related expenses. 

The contributions to a 529 or an ESA are not tax-deductible, but some states might offer one for eligible deposits. Qualified withdrawals are tax-free.  

4. Trading Accounts for Kids 

If you’re looking for child-friendly investment options, there are a few choices out there that can accommodate minors. 

  • Custodial IRA. When kids have an earned income, they can contribute to an IRA. An adult must create and maintain the account until the child reaches age 18 or 21. The funds are eligible to deposit as long the money gets reported to the IRS. [4] 
  • Custodial Brokerage Account. This option includes UGMA and UTMA accounts. The latter can hold real estate and the other typical investments you’d use for trading. Once money goes into it, the funds cannot be transferred to other beneficiaries. Control transfers at age 18 or 21. [5] 
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When the contributions go to a Roth IRA, those funds, but not any investment earnings, can be pulled out at any time without penalty or tax consequences.  

Is an Online Trading Account Right for Me? 

Everyone has different financial needs to consider, so choosing an online trading account is one option of several for wealth management and growth. 

If you decide to pursue these online types of trading accounts, please remember to consider your current and future needs. A 529 plan doesn’t make sense if your primary goal is to get money stashed away for retirement.  

Once you have that decision finalized, you can learn more about the different ways to trade.

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