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In this article you will learn everything you need to know about joint brokerage accounts and if it is a wise decision to ever open an account with another person.
Joint Brokerage Account Definition
A joint brokerage account is an investment account that allows two or more people to place assets in a bank account. Multiple individuals manage their investments together, pool resources, make collaborative decisions and share profits or losses.
How Does a Joint Brokerage Account Work?
For couples, a joint brokerage account gives each party equal ownership of the assets in the account. Married couples often choose this type of joint brokerage account because it allows the surviving owner to have rights to the deceased’s share.
Joint accounts will have greater funds and better access to a range of investment strategies. Pooling assets can save on fees, make it easier to track collective progress and allow the most investment-savvy party to manage the assets.
Examples of Joint Brokerage Accounts
The type of joint brokerage account a couple chooses depends on how the parties need to allocate shares. Fidelity and Charles Schwab are two of the top joint brokerage firms.
These companies enable investors to open brokerage accounts that allow each account holder to designate beneficiaries. All investors enjoy the benefits of a single investment account using their money pooled together.
Types of Joint Brokerage Accounts
There are three types of joint brokerage accounts:
- Tenancy by entirety: A form of joint ownership only available to married couples with survivorship rights included. Both spouses have an equal, 100% interest in the property and are one entity within their joint tenancy.
- Joint tenants with rights of survivorship: Tenants have an equal right to the account’s assets and have survivorship rights. All account activity that one tenant executes affects all other tenants of the account.
- Tenancy in common: This account does not support survivorship rights. Each tenant has the right to sell or transfer their share of the property to someone else.
Benefits of a Joint Brokerage Account
Here are a few benefits of opening a joint brokerage account:
- Combined resources: One of the main advantages of having a joint brokerage account is the ability to combine resources. This enables both account holders to take advantage of lower fees, reduced transaction costs and the power of compounding interest.
- Couples combining finances: Combining finances allows both account holders to benefit from lower fees and transaction charges, plus compounding interest benefits.
- Simplify estate planning: Certain joint brokerage accounts can help simplify estate planning. If one account holder passes away, the other account owner will automatically receive the finances in the account. This may also allow the surviving account holder to avoid a costly legal battle for ownership.
- Single investment manager: Another benefit of having a single investment manager is that it can potentially lead to higher returns. The manager can customize the portfolio to meet individual investor’s needs and goals.
- Mobile apps: Mobile investing platforms provide resources to help users learn about investing basics and how to develop a good strategy, among other investing concepts. They often offer real-time information and news about individual stocks and companies.
Disadvantages of a Joint Brokerage Account
There are also a few downsides to having a joint brokerage account:
- Both parties have 100% access: Both owners of a joint brokerage account can sell off all the assets and make withdrawals without the other’s consent. This can be especially problematic in family situations, as it can cause financial hardship for other family members.
- Transparency and trust: Owners of a joint brokerage account must be comfortable with not fully owning the account. The parties may have to share information about their financial goals, investment objectives and risk tolerance.
- No designation of beneficiaries: Another disadvantage is that there is no designation of beneficiaries, so if the joint owners were to die simultaneously, the account could be in probate until the court decides how to divide the assets of the deceased persons. This could take a year or longer.
- Greater risk from creditors: Owners of a joint brokerage account share the assets. If creditors come after the assets of one individual, they may seize the entire joint account, exposing the other owners to additional risk.
- Gift tax liabilities: There can also be tax consequences for joint account holders. If only one person deposits money into a joint brokerage account, that can sometimes constitute a taxable gift from the depositing account holder to the other account holder.
How to Open a Joint Brokerage Account
Opening a joint brokerage account can be simple and easy. There are five steps to opening a joint account:
- Research the brokers that offer joint accounts: Consider fees, services and features. Some brokers may have minimum initial investment requirements for mutual funds, while others may charge an annual account service fee.
- Choose the account type and provide information about yourself: Think about how you would like your assets distributed if you pass away. Also, consider how you want other account holders’ investing behavior to affect you.
- Select your investments: You may be able to buy and sell investments through a brokerage or take advantage of a robo-advisor. You may also be able to add features to your account, such as options trading or check writing.
- Fund the account: You can transfer funds conveniently by writing a check, gifting cash, or initiating a bank transfer.
- Start investing!
3 Best Joint Brokerage Accounts
You can find joint brokerage accounts with many firms, but here are some of the best:
- Fidelity: Fidelity supplies a wide range of services, from banking and investment products to financial advisors and planning. Fidelity also has zero commission for stock and exchange-traded fund (ETF) trades and $0.65 per contract on options trades.
- Charles Schwab: Charles Schwab offers accounts, including 401(k)s, 529 plans, custodial, individual retirement options, joint, and more. Schwab also provides zero commission for stock and ETF trades and $1 per contract for customers with less than $1 million in assets.
- Vanguard: Vanguard offers investors banking, investment products, financial advisors and financial planning services. Vanguard also provides zero commission for stock and ETF trades and $1 per contract for customers with less than $1 million in assets.
Is a Joint Brokerage Account a Good Idea?
A joint brokerage account can be a great way to manage investments with another person, such as a spouse or family member. It is easier to manage a single investment account held jointly than multiple accounts for couples, family members, or business partners.
If you think a joint brokerage account is right for you, contact a financial advisor to discuss the benefits of this arrangement.
Joint Account FAQs
If you still have queries about joint brokerage accounts, these frequently asked questions may be able to help:
Who pays taxes on a joint brokerage account?
All owners of a joint brokerage account are responsible for paying taxes on it. The primary account holder should ensure all other account holders receive tax forms provided by the broker.
Should my wife and I have a joint brokerage account?
Spouses can pool resources and take advantage of lower fees and transaction costs. Additionally, it is easier to manage a single investment account held jointly than to manage multiple accounts.
Is it better to have a single or joint brokerage account?
A joint brokerage account can increase your returns, but may expose you to more risk. Therefore, it may be a better option if someone has their own individual account.