By Harry Prabandham · Updated September 28, 2026
Personal Finance
What Is a Brokerage Account? Types, SIPC Coverage, and Taxes
A brokerage account holds stocks, bonds, and funds at a broker-dealer. Taxable accounts have no limits; SIPC covers missing assets, not market losses.
What Is a Brokerage Account? Types, SIPC Coverage, and Taxes
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What is a brokerage account?
- It is an account at a broker-dealer used to buy, hold, and sell securities such as stocks, bonds, ETFs, and mutual funds.
- A taxable individual or joint account has no contribution limits or withdrawal restrictions.
- The same firm may also hold IRAs, Roth IRAs, and custodial accounts, each with its own tax rules.
- Brokerage accounts aren't FDIC-insured, though cash swept to partner banks may be.
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Full Guide
What is a brokerage account?
- It is an account at a broker-dealer used to buy, hold, and sell securities such as stocks, bonds, ETFs, and mutual funds.
- A taxable individual or joint account has no contribution limits or withdrawal restrictions.
- The same firm may also hold IRAs, Roth IRAs, and custodial accounts, each with its own tax rules.
- Brokerage accounts aren't FDIC-insured, though cash swept to partner banks may be.
How is a taxable brokerage account taxed?
- Interest and non-qualified dividends are taxed as ordinary income in the year received.
- Qualified dividends and long-term gains get lower rates, with 0% in 2026 up to $49,450 of taxable income single or $98,900 joint.
- Gains on assets held a year or less are taxed at ordinary rates.
- The 3.8% net investment income tax can apply above $200,000 of MAGI single or $250,000 joint.
What does SIPC cover?
- SIPC covers up to $500,000 per customer, including up to $250,000 in cash, when a member firm fails and customer assets are missing.
- It does not cover market losses or poor investment decisions.
- Coverage applies separately to each capacity, such as individual, joint, and IRA accounts.
- Many firms carry additional private excess coverage, with terms that vary.
Cash vs. margin account: what's the difference?
- A cash account requires paying in full for purchases.
- A margin account lets you borrow against your securities, which magnifies both gains and losses.
- If values fall, the firm can issue a margin call or sell your securities without contacting you first.
- Margin interest accrues on the loan balance, at rates set by each firm.
What tax forms will you receive?
- Form 1099-B reports sale proceeds and, for covered securities, cost basis.
- Form 1099-DIV reports dividends and capital gain distributions, and Form 1099-INT reports interest.
- Brokers must furnish Form 1099-B by February 15, and corrected forms can arrive later.
- Basis for shares from RSUs or an ESPP is often reported as zero or incomplete, which can overstate gains.
How do you move an account to another broker?
- Most transfers run through ACATS, started at the receiving firm, which moves holdings in kind without selling.
- In-kind transfers keep cost basis and holding periods, avoiding a taxable sale.
- FINRA Rule 11870 sets deadlines for firms to validate and complete customer account transfers.
- Proprietary funds or fractional shares may need to be sold first, which can realize gains.
Key takeaways
- A taxable brokerage account offers flexibility but is taxed on income and gains each year.
- SIPC covers missing assets if a firm fails, not investment losses.
- Margin borrowing magnifies losses and can force sales.
- Check equity-compensation basis on 1099-B with your CPA.
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Buying on margin means borrowing from a broker against your securities. It magnifies gains and losses, adds interest, and can force sales.
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