Account Types
The account a security is held in changes what can be done with it, how it is taxed and who has a claim on it. It is a structural decision, not an administrative one.
MadStockAlerts Research · Updated August 29, 2026
What to take away
- The account type determines tax treatment, borrowing ability and withdrawal rules.
- A taxable account is the most flexible and the only one taxed as it goes.
- Retirement accounts trade flexibility for tax treatment, with withdrawal rules attached.
- Joint and custodial accounts change who legally owns the assets, which is not reversible casually.
- Cash and margin are a property of the account, not of any individual trade.
MAD Academy Training Video · 0:46
The Wrapper Decides the Tax
The same portfolio in a taxable account, an IRA and a Roth produces three completely different after-tax outcomes.
This lesson is part of a Stock Alerts + Tools plan.
The families
| Type | Distinguishing feature | Main constraint |
|---|---|---|
| Individual taxable | One owner, no restrictions on withdrawal | Gains are taxed as they are realised |
| Joint | Two or more owners | Survivorship and ownership rules vary by form and by state |
| Traditional retirement | Contributions may be deductible; growth deferred | Withdrawal rules and required distributions |
| Roth retirement | Contributions after tax; qualified growth untaxed | Income limits and contribution caps |
| Custodial | Held for a minor by an adult | Becomes the child's property at the age of majority |
| Trust and entity | Held by a legal entity | Governed by the entity's own documents |
The distinction that matters most for anything discussed elsewhere in this library is the first against the third and fourth. A taxable account produces a tax consequence every time a position is closed at a gain; a retirement account generally does not, which changes the arithmetic of frequency substantially.
Everything here describes how the account types work. It is not tax or legal advice, contribution and withdrawal rules change, and the treatment of any particular situation depends on circumstances only a professional can assess.
What the account type restricts
Beyond tax, the account form determines what strategies are permitted at all. Retirement accounts generally cannot be margined, which rules out short selling and most option structures requiring margin, because the account cannot pledge assets as collateral in the ordinary way.
- Short selling requires borrowing shares, which requires a margin agreement.
- Uncovered option selling requires margin, and brokers apply their own approval levels on top of the rules.
- Some accounts restrict which securities may be held at all, particularly non-US listings and partnerships.
- Withdrawal from a retirement account before the qualifying age generally triggers tax and a penalty, which makes the capital genuinely less available.
The last point is the one most often underweighted. Money in a retirement account is not a substitute for an emergency reserve, and a process that relies on being able to withdraw is relying on a withdrawal that carries a cost.
Registration is a legal fact
How an account is registered determines who owns the assets, and that is a legal question rather than a preference. Adding a second name to an account is a transfer of an ownership interest, and removing it later is not always straightforward.
| Registration | What happens on death of one owner |
|---|---|
| Individual | Passes under the will, through probate unless a beneficiary is designated |
| Joint with rights of survivorship | Passes to the surviving owner outside the will |
| Tenants in common | The deceased owner's share passes under their will |
| Transfer on death | Passes directly to the named beneficiary |
A beneficiary designation on an account generally overrides a will, which is a common and consequential surprise. The designation is a form held by the broker, and it is only as current as the last time it was updated.
Custodial accounts and the age of majority
A custodial account holds assets for a minor, managed by an adult. The essential feature is that the assets belong to the child from the moment they are contributed: the custodian manages them and does not own them, and contributions are irrevocable gifts.
At the age of majority set by the relevant state, control passes to the beneficiary outright, with no conditions on what they do with it. That is a design feature rather than a defect, and it is the point that most frequently goes unconsidered when the account is opened.
Custodial assets also count as the child's assets for some financial aid calculations, which can affect eligibility more than the same assets held by a parent. The rules are specific and change; this is one of many places where a professional's view is worth more than a general description.
Beneficiaries, and why the form beats the will
Most account types allow a beneficiary to be named, and a valid designation generally passes the asset directly to that person outside the will and outside probate. That is efficient and it produces a specific failure mode.
- A designation made years ago is the one that operates, whatever a later will says.
- A divorce does not automatically remove a former spouse from every designation, and the rules vary.
- A designation naming a person who has died, with no contingent named, can send the asset back through probate.
- Employer plan accounts have their own rules, and spousal consent is required in some circumstances.
The first item is responsible for a recurring and entirely avoidable outcome: an estate carefully arranged by a will, undone by a form completed when an account was opened and never revisited.
The practical version is a review rather than a decision: every account, every designation, checked against what is currently intended. It takes an afternoon and it is one of the few things in this library with no trade-off attached.