A few questions about brokerage accounts???

Question

1. How do you open one?

2. How does it come into play with taxes?

3. Can you use it like a savings account only difference being you can buy and sell stock?

4. What happens if the money sits there too long without any trading?

Thank you!

Answer 1

In the United States almost anyone who is 18 years of age or older can open a brokerage account.

To open an account, you can visit a brokerage firm or visit their websites and open an account on-line.  All major brokerage firms provide on-line services for their clients,

Most firms have minimum dollar requirements for opening an account, but if you're going to be investing or using the money market this should not be of concern

All income that is generated through your brokerage account is reportable to the IRS.  If dividends and/or interest is paid in your account, the brokerage firm will send you a 1099 at the end of the year to be reported for taxes.

All securities sold for gains must be reported to the IRS, Brokerage are bound by law to report all customer sell transactions, a copy is sent to the client.  

Securities for a loss, can be used for your taxes in reporting such loss on your tax filing.

Brokerage firms are not obligated to provide a report indicating profit and/or loss from security transactions.

Most major brokerage firms provide money market accounts which can be used as a savings account.  Most firms provide many types of money market accounts for the convienence of their clients. The interest paid is usually higher than bank interest rates.

Most firms will permit customers to hold money in money markets accounts without doing any trades.  Each firm has there own criteria.

Hope this is helpful, from someone with B/D experience

Answer 2

1. How do you open one?

Most have websites where you can apply online. I'm at www.tdameritrade.com

2. How does it come into play with taxes?

You pay regular income tax on any interest bearing accounts you have with them, you pay the current dividend tax rate on stock dividends (to be raised under an Obama administration). And you'll pay the capital tax rate on any stocks you sell at a profit (to be greatly increased under an Obama administration).

3. Can you use it like a savings account only difference being you can buy and sell stock?

You can open a money market account which is very similar to a savings account except that they may not be insured by the FDIC.

4. What happens if the money sits there too long without any trading?

Some brokerage firms have inactivity fees (especially for small sum accounts) but most don't. TD Ameritrade does not.

Good luck.