🎯 In 30 seconds: Every brokerage account answers two questions. How do you pay for trades: only with your own settled cash (a cash account) or partly with borrowed money (a margin account)? And how is it taxed: every year (a taxable account) or under retirement rules (a Roth or traditional IRA)? If you are under 18, an adult opens a custodial account for you, and if you have a job, a custodial Roth IRA lets your earnings grow tax-free for decades. For 2026, IRA contributions are capped at $7,500 or your earned income, whichever is less.
The two choices behind every account
The account menu at a broker can look long: individual, joint, IRA, Roth, custodial, margin, cash. It gets simpler once you see that each account is a combination of a few choices.
- Who owns it: you alone, you and another person, or a minor with an adult in charge.
- How you pay: cash only, or cash plus borrowing (margin).
- How it is taxed: taxable each year, or a tax-advantaged retirement account.
| Account | Owner | Borrowing | Taxes | Main use |
|---|---|---|---|---|
| Individual cash | You (18+) | No | Each year | Learning to trade, any goal |
| Individual margin | You (18+) | Yes | Each year | Active trading, short selling, most options strategies |
| Roth IRA | You, with earned income | No | Tax-free growth if rules met | Retirement, long-term investing |
| Traditional IRA | You, with earned income | No | Taxed when withdrawn | Retirement |
| Custodial (UTMA/UGMA) | A minor, run by an adult | No | Child's tax rules | Saving or investing for someone under 18 |
| Custodial Roth IRA | A minor with earned income | No | Tax-free growth if rules met | A teen's first retirement savings |
| Joint | Two or more adults | Either | Each year | Couples, shared goals |
Cash accounts: you pay with settled money
In a cash account you can only buy what you can pay for in full. It is the safest place to start because you cannot lose more than you put in on plain stock purchases.
The rule to understand is settlement. When you sell a stock, the trade settles one business day later. This is called T+1 (trade date plus one), and it has been the US standard since May 28, 2024. Until then, the cash from the sale is "unsettled".
Most brokers let you buy with unsettled cash. The trap is selling that new purchase before the original money settles. That is a good faith violation. Brokers restrict cash accounts after repeated violations, typically to settled-cash-only trading for 90 days. Buying a stock and selling it without ever paying for it is freeriding, which also leads to a 90-day restriction under Federal Reserve Regulation T. Details are in The rules every trader runs into.
Margin accounts: borrowing adds risk and rules
A margin account lets you borrow from the broker using your stocks as collateral. You must be 18 or older, sign a margin agreement, and keep a minimum amount of equity in the account. FINRA's minimum is $2,000, and brokers can require more.
Under Federal Reserve Regulation T, you can generally borrow up to 50% of the price of a stock you buy. FINRA then requires you to keep equity of at least 25% of the market value of margin stocks you hold, and many brokers set a higher level. Fall below it and you get a margin call: add money or the broker sells your positions, possibly without asking first.
Margin also allows short selling and most options strategies beyond the simplest ones, and it removes the settlement waits of a cash account. The cost is interest on what you borrow and losses that grow faster than your account. The full mechanics, with a worked margin call, are in Margin explained.
Pattern day trader rule, as of October 2026. For years, a margin account that made four or more day trades in five business days was flagged as a "pattern day trader" and needed $25,000 in equity. In April 2026 the SEC approved FINRA's replacement: risk-based intraday margin standards that drop the $25,000 minimum and the trade count. The new standards took effect June 4, 2026, and firms have until October 20, 2027 to put them in place. Until your broker switches, it may still apply the old rule. Ask, and see Day trading.
Taxable accounts vs IRAs
In a regular taxable account, you owe tax in the year you sell at a gain or receive a dividend. Gains on positions held one year or less are short-term and taxed like wages. Longer holdings get lower long-term rates. Losses can offset gains. See Taxes for traders.
An IRA (individual retirement arrangement) is a tax-advantaged account for retirement. Trades inside an IRA do not create a tax bill each year. You can trade stocks and ETFs in an IRA, but you cannot borrow money in it, and losses inside it cannot be deducted.
- Traditional IRA: contributions may be tax-deductible now. Withdrawals in retirement are taxed as income.
- Roth IRA: contributions are made with money you already paid tax on. Qualified withdrawals in retirement, including all the growth, are tax-free.
Both share one yearly limit. For 2026 the IRS limit is $7,500 across all your IRAs combined ($8,600 if you are 50 or older). There is a second limit that matters for young people: you cannot contribute more than your taxable compensation for the year, meaning money earned from work. Roth contributions are also limited at high incomes, which rarely affects students.
A Roth has one feature that makes it flexible. Under IRS ordering rules, the money you contributed comes out first, and you can withdraw your contributions at any time without tax or penalty. Earnings are different: taking them out before age 59½ usually means tax plus a 10% penalty, with some exceptions. Treat a Roth as long-term money anyway.
Custodial accounts for people under 18
In most states you cannot sign a binding brokerage agreement until you are an adult. So an adult, usually a parent, opens a custodial account under the Uniform Transfers to Minors Act (UTMA) or the older Uniform Gifts to Minors Act (UGMA).
- The money belongs to the minor. FINRA describes the minor as the owner of the property from the moment it is given. The gift cannot be taken back.
- The custodian controls it. The adult places trades and must manage the account for the minor's benefit.
- Control passes at the age of majority for these accounts. That is usually 18 or 21 depending on the state and how the account was set up. The custodian must then hand the assets over.
- It is usually a cash account. Do not expect margin or advanced options.
- The child's tax rules apply. A child's investment income above a threshold can be taxed at the parent's rate under the "kiddie tax". Check the current year's figures with the IRS.
Custodial Roth IRA: the best account most teens never open
If you are under 18 and have earned income, a parent can open a custodial Roth IRA for you. Earned income means pay from work: a W-2 job at a store, or self-employment such as babysitting, lawn mowing or tutoring. Keep records of self-employment income. Allowance, gifts and investment income do not count.
The contribution limit is your earned income for the year or $7,500 (for 2026), whichever is smaller. The money does not have to be the same dollars you earned. The IRS gives an example of a college student who earned $3,500 and notes that his grandmother can make the contribution on his behalf. So a parent could put in the amount you earned while you keep your paycheck.
Worked example (hypothetical). You are 16 and earn $4,000 at a summer job in 2026. Your maximum Roth contribution for 2026 is $4,000. Suppose it earns a hypothetical 7% a year on average, which is not guaranteed.
| After 10 years (age 26) | $7,869 |
| After 20 years (age 36) | $15,479 |
| After 30 years (age 46) | $30,449 |
| After 40 years (age 56) | $59,898 |
| After 50 years (age 66) | $117,828 |
The arithmetic is $4,000 x 1.07years. In a Roth, if you follow the rules, none of that growth is taxed when you withdraw it in retirement. Real returns will vary a lot from year to year and can be negative for long stretches.
When you reach the age of majority for your state, the custodial Roth becomes a regular Roth IRA in your name. More on building a long-term core is in A plan for a young person.
What changes at 18 or 21
- At 18 you can open accounts in your own name, including a cash account, a Roth IRA and, if the broker approves you, a margin account.
- A custodial account must be transferred to you at the age set by your state and the account. The custodian loses control. The money is legally yours to use however you choose.
- Brokers ask about income, net worth and experience before approving margin or options. Answer honestly. Those questions exist to keep beginners away from products that can lose more than the account holds.
Joint accounts
A joint account is owned by two or more people. The most common form is "joint tenants with rights of survivorship" (JTWROS): if one owner dies, the other owns everything. Another form, "tenants in common", lets each owner's share pass to their own heirs.
In most joint accounts, either owner can trade and withdraw. That needs real trust. Taxes are split according to who owns what. Joint accounts are mostly for couples. A parent and an adult child sometimes use one, but it gives the parent full access to the money.
Try it
Write down three things: your age, whether you have earned income this year and roughly how much, and what you want the account for. Then pick from the table at the top. If you have earned income, check whether a Roth (or custodial Roth) fits. Meanwhile, practice with fake money in the paper portfolio, and make sure your emergency fund is started before you put real money into trading. Next: Your first trade, step by step.
- What is the 2026 IRA contribution limit? Answer: $7,500 across all your IRAs combined ($8,600 if you are 50 or older), and never more than your earned income for the year.
- What is a good faith violation in a cash account? Answer: Buying with unsettled cash from a sale, then selling that new purchase before the original money settles.
- Under Regulation T, how much of a stock’s price can you generally borrow in a margin account? Answer: Up to 50%.
- You are 16 and earn $4,000 at a summer job in 2026. What is the most you can put in a custodial Roth IRA for 2026? Answer: $4,000, because the limit is your earned income or $7,500, whichever is smaller.