Individual vs. Joint Brokerage Accounts

When it comes to investing, you can go it alone or with a partner. That’s true no matter what form your assets take, including brokerage accounts. With an individual brokerage account, you’re the only person with any rights to the portfolio. Only you can make decisions about the account, and its contents belong entirely to you. With a joint brokerage account, you share rights to this portfolio with someone else. You both make decisions about the account and share all assets.

A financial advisor can help you develop an investment strategy that fits your long-term goals.

What Is an Individual Brokerage Account?

A brokerage account is an investment portfolio held by a third party firm on your behalf. For virtually all investors, financial securities run through third parties such as banks and brokers. You tell them what to buy and sell on your behalf, they do so and then they hold those securities for you until you’re ready to cash out.

These days, many investors like to hold brokerage accounts with online trading platforms such as E*TRADE.

An individual brokerage account is a portfolio that you own and manage on your own. No one else has any rights to it. This means that no one can make decisions about the assets in this account and no one else owns the assets in it. An individual account is sometimes known as a “tenancy in severalty.”.

Now it’s extremely important to note this only applies to direct ownership of the account. This says nothing about what happens to assets once they belong to you. If someone else has a claim to your money, that generally includes the proceeds of an individual brokerage account because it’s your money. The question is whether you own these assets, not what happens to assets that are yours.

What Is a Joint Brokerage Account?

A joint brokerage account is an investment portfolio that you share with someone else. This means that the two of you both can make decisions about the assets in this account, and the two of you both own the assets or cash in it. The most common joint accounts are held between married couples who have decided to merge their finances, between members of a joint venture like a business or investing group, and between parents and their children.

Joint brokerage accounts are a form of communal property, and they obey the same rules as all communal property. That is to say, the rules for sharing a brokerage account are generally the same as the rules for sharing ownership of a house or a car. Be sure to look up the rules in your own jurisdiction before making any decisions. As with all issues governing property and money, different states will have their own laws.

There are different types of joint property arrangements, and your rights will depend on what specific form of joint brokerage account you have. The three most common forms are:

Joint Tenancy

This is also sometimes called joint tenancy with rights of survivorship. In a joint tenancy, you both own the assets entirely. Each of you can make any decisions about the account as you see fit, and each of you can withdraw and spend its proceeds as you like. When one owner of the account dies the survivor automatically owns the entire account.

Some sites indicate that the surviving owner “inherits” the account. This is inaccurate. A joint tenancy does not trigger probate or inheritance laws or taxes because the account is not inherited. It was yours to begin with and your co-owner has simply passed on.

Tenancy in Common

With a tenancy in common you can both manage and make decisions over all asset allocation. This is called the “right of use.” (If we were talking about real estate, it would be known as a “right of occupancy.”) However, you each own your share of the portfolio independently, meaning that you can only withdraw and spend your share of the assets.

For example, say you and your spouse buy $60,000 worth of stocks in a joint account. You put in $20,000 and your spouse put in $40,000. You can buy and sell all of the stocks in that portfolio as you see fit, but you can’t withdraw more than the 1/3 of the portfolio’s value that you put in. This is your share of the account. A tenant in common can give or sell someone else their share of the portfolio. Upon death, their share of the account passes to heirs through standard inheritance laws.

Tenancy by the Entirety

Tenancy by the entirety is a form of shared ownership available only to married couples. Currently recognized in 25 states and the District of Columbia, a tenancy by the entirety is similar to joint tenancy. Both spouses fully co-own the assets. This means that you can both make decisions for the entirety of the account, and if one spouse dies the account remains completely in the hands of the surviving spouse.

However, under a tenancy by the entirety you cannot transfer or sell the assets without your spouse’s permission. Essentially, you can move assets around within the account as you like, but both owners of the account have to approve any withdrawals.

Why Use a Joint Brokerage Account?

A couple setting up a joint brokerage account.

There are several situations where you would want to use a joint brokerage account. For example, married couples who want to merge their finances will commonly use this format. Similarly, business partners will often create a shared brokerage account for their venture’s assets. This is generally a useful choice for anyone who wants to share money with someone else. For example, if you have joint household finances, many people find it easier and more convenient to let both members of the household move around the investments.

In other cases, it creates a level of trust. If you share a business with someone, there’s far more transparency when everyone can access the company’s portfolio. You don’t have to just count on your partner to properly manage the investments.

The drawback is much the same as with any shared financial arrangement: You need to be on the same page. You need to make sure that you completely trust your co-owner, otherwise you’ll be risking your money on their judgment. You also need to make sure that you share the same financial goals. No one wants to discover that their money vanished in a series of high-risk investments when they, personally, wanted to play it safe.

A shared account can be an incredibly useful tool, second only to good communication.

Pros and Cons of Individual vs. Joint Accounts

Choosing between an individual and joint brokerage account depends on how you want to manage control, access and risk. Each has advantages and potential drawbacks.

Pros of an Individual Account

Full control: You make all investment decisions without needing approval from anyone else.
Simpler taxes: All income, gains and losses are reported under your Social Security number.
Protection from co-owner risks: Your portfolio isn’t exposed to another person’s financial missteps, debts or legal issues.

Cons of an Individual Account

No shared access: Only you can trade, deposit or withdraw from the account.
Potential delays for heirs: Without beneficiary designations or proper estate planning, the account may go through probate if you pass away.

Pros of a Joint Account

Shared access: Both owners can manage the account, which is helpful for spouses, partners or business associates.
Ease of transfer upon death: Certain joint account types, like joint tenancy with rights of survivorship, automatically pass to the surviving owner without probate.
Convenience for shared finances: Ideal for couples or partners who invest together and want both names on the account.

Cons of a Joint Account

Potential disagreements: Co-owners may have different investing styles or risk tolerance.
Risk of misuse: Either owner can withdraw or sell assets at any time.
Exposure to co-owner’s financial troubles: Creditors could pursue the account if one owner has outstanding debts or legal judgments.

Tax Implications of Individual vs. Joint Brokerage Accounts

How an account is titled can impact how income, gains, and losses are taxed. Here are some key points to consider.

Individual Accounts

All dividends, interest, and capital gains are reported under your name and Social Security number.
You’re solely responsible for paying taxes on any income the account generates.

Joint Accounts

Income is typically split evenly between account holders for tax purposes, unless ownership percentages are specified.
Each owner reports their share of dividends, interest and capital gains on their individual tax return.
In cases where one owner contributed significantly more than the other, the IRS may treat the difference as a gift, which could trigger gift tax reporting requirements.
Certain joint account transfers upon death may also have estate tax implications, depending on the account structure and size of the estate.

Bottom Line

A man checking his individual brokerage account.

An individual brokerage account is an investment portfolio that belongs only to you. No one else has rights or ownership over it. A joint brokerage account is an investment portfolio that belongs to you and someone else. You can both make decisions over the portfolio’s assets and can both withdraw money from it.

Tips on Investing

It’s very important to remember that the rules of joint ownership do not just apply to brokerage accounts. This applies to real estate, personal property and anything else you own. That means that joint tenancies can come up a lot.
Should you merge your assets? A financial advisor can help you figure it out. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.