Brokerage account VS IRA

[mintberry]

I have never really understood the difference between a regular brokerage account and a retirement account. All I know is an IRA can typically be opened with a lower minimum balance.

Would it not be better to invest your money through a brokerage account than an IRA if commissions on trades are cheaper?

[atomicrc11]

Brokerage and IRA accounts are not mutually exclusive. One may have a brokerage account that is within an IRA account. The difference in prices for trades will come with the company.

[mintberry]

Lets say you have a brokerage account with E-trade. Wouldnt you have better access to it (to withdraw) than you would with an IRA? What benefit would one have from investing in a Mutual Fund from within an IRA than with a brokerage account alone?

[Broken Arrow]

An IRA is a tax shelter, normally for retirement. You can get an IRA account from just about any investment firm or investment brokerage.

A taxable is a regular account that is taxed annually as earned income. You can also get that from any investment firm or investment brokerage.

An investment firm is typically a company that sells passive investments such as mutual funds.

An investment brokerage is typically a company that sells active investments such as stocks and ETFs.

The lines, however, have been blurred significantly in recent years. Traditional investment firms are now offering stocks and ETFs, and investment brokerages are now offering to buy outside passive mutual funds for you.

So, now it's mostly semantics, but a classic example of an investment brokerage would be E*Trade and a classic example of an investment firm would be Vanguard.

At least, that's how I understand it....

[disneysteve]

An IRA is a retirement account. There are 2 types: traditional and Roth. With a traditional, money is put in after taxes and, if you meet the requirements, you can deduct your contribution from your taxes. The money in the account grows tax-free. When you withdraw the money in retirement, you pay taxes on the earnings.

With a Roth, money is put in after taxes but there is no deduction. The money grows tax-free and when withdrawn in retirement it is not taxed either.

With a traditional, money taken out before retirement age is subject to penalty (with certain exceptions). With a Roth, you can withdraw your contributions prior to retirement but not your earnings (without a penalty). There are some other differences between the two but that's the basics.

For either type of IRA, the maximum annual contribution is currently $5,000 or $6,000 if you are age 50 or older.

A non-IRA brokerage account can be opened for any amount (based on the minimum investment of the company) and you can invest as much as you'd like. There is no limit. You get no tax deduction for money you put in. Earnings are taxed annually. You can withdraw all or part of the money whenever you'd like with no penalty.

So basically, an IRA/Roth is used for retirement planning. A regular brokerage account can be used for anything.

[mintberry]

I see. Thank you all for your responses!