Brokerage Account Versus IRA: Which One Do You Open First?

What is the difference between a brokerage account and an IRA?

Before you invest, choosing the right account—brokerage or IRA—can make a six-figure difference over time. Mish.El/Shutterstock

A brokerage account and an individual retirement account (IRA) are similar in some ways; both let you invest in stocks, funds, and other assets. However, they treat taxes very differently. And that difference can be worth tens of thousands of dollars over time.

If you are just starting out, the right account to open first depends on three things: whether your employer offers a 401(k) match; how much you earn; and when you will need the money. What we’re aiming to do in this article is explain both accounts clearly and give you a straightforward framework for deciding which one fits your situation.

They Hold the Same Investments, but the Tax Rules Are Completely Different

This is often the deciding point, and the one most beginners skip over. A brokerage account and an IRA can hold the exact same investments (e.g., stocks, index funds, exchange-traded funds). The difference is how and when the government taxes your gains.