Brokerage Account vs. Roth IRA: Choosing Your Investment Strategy

When you’re ready to invest, understanding what is a Roth IRA compared to a brokerage account is crucial to building your financial strategy. Both are legitimate investment vehicles, but they serve different purposes and come with distinct rules about how much you can contribute and when you can access your money.

Key Distinctions Between These Two Account Types

Income and Eligibility Rules

A brokerage account welcomes almost anyone with a Social Security number or taxpayer identification number, regardless of how much you earn. A Roth IRA has stricter income gates. You must have earned income, but there are upper limits depending on your filing status. Single filers hit contribution phase-outs at $165,000 in modified adjusted gross income, while joint filers max out at $246,000.

How Much Can You Actually Invest?

Brokerage accounts have zero ceiling—invest as much as you want. A Roth IRA caps you at $7,000 annually if you’re under 50, or $8,000 if you’re 50 or older (as of 2025). This limitation is one reason many experienced investors maintain both account types.

What You’re Allowed to Buy

Both offer stocks, bonds, mutual funds and ETFs. However, alternative assets like artwork, collectibles, and life insurance policies are prohibited in a Roth IRA. Many brokerage accounts will let you hold these unconventional investments if the provider supports them.

The Critical Withdrawal Difference

This is where the accounts diverge most dramatically. With a brokerage account, you pull out your gains anytime, though you’ll owe capital gains taxes when you sell profitable positions. A Roth IRA only lets you withdraw earnings tax-free if you’re over 59½, become disabled, buy your first home, or inherit the account from someone else. Even then, the account must have existed for at least five years. Withdraw earnings before meeting these conditions and you face ordinary income tax plus a 10% penalty.

Contributions themselves are another story—you can always pull out what you put into a Roth IRA without tax or penalty, just like a brokerage account.

Similarities Worth Noting

No Immediate Tax Breaks on Contributions

Neither a Roth IRA nor a brokerage account lets you deduct contributions from your taxes right now. That’s different from a traditional IRA, where contributions may reduce your current taxable income. The benefit of a Roth IRA comes later, through tax-free growth.

Easy Setup and Access

Both are readily available from brokers and financial institutions online. You can open either one in minutes and start investing immediately.

Which Account Fits Your Situation?

Go With a Roth IRA If:

You’re saving primarily for retirement and want your investment gains to grow completely tax-free. You’re also a good candidate if you’re young with several decades until retirement—that extended time horizon maximizes the tax-free compounding benefit. First-time homebuyers can withdraw up to $10,000 penalty-free (though still subject to the five-year rule), making it a dual-purpose savings vehicle. Even teenagers can open custodial Roth IRAs if they have earned income from work.

Choose a Brokerage Account If:

You need your money within the next several years for goals like buying a car, funding education, or taking a sabbatical. The flexibility to withdraw anytime without penalty makes brokerage accounts ideal for intermediate-term goals. It’s also the solution for investors whose income exceeds Roth IRA limits. Some people max out their Roth IRA first, then use a brokerage account for additional retirement savings, since the latter offers long-term capital gains rates (0%, 15%, or 20%) that might beat traditional IRA distribution rates.

The choice between a brokerage account and a Roth IRA isn’t either-or—many investors strategically use both to optimize their tax situation and timeline.