Can You Open a Joint Brokerage Account?
If you’re in a long-term relationship, you’re likely thinking about combining your finances together, such as opening a joint brokerage account. It makes practical sense.
Whether you’re a newlywed or have been together for years, managing your money together improves transparency between you.
And, it helps ensure you’re both aware of your entire financial situation, so you can better plan for the future.
Joining your finances together can be a good thing, but what about opening a joint brokerage account?
While putting two people on a single brokerage account can streamline your investments, there are some downsides to consider.
Continue reading to find out if opening a joint brokerage account is right for you.
What Are Joint Brokerage Accounts?
When you open a joint brokerage account, two people can save their money and make progress toward their financial goals together.
Both holders of a joint account have ownership of the assets in the account.
Each person can transfer funds, make allocation changes, and view the current balance.
Because you both have equal ownership, you don’t need to get consent before making any changes or withdrawals.
Opening a joint account is different than simply naming a person as a beneficiary.
A beneficiary only has access to the account if you pass away.
While you’re alive, the beneficiary can’t view the account, make changes, or transfer money. With a joint brokerage account, the other account holder has equal control.
Rights of survivorship
Many joint investment accounts have rights of survivorship.
That phrase means that ownership of the account goes to the surviving account holder if the other person passes away.
Joint brokerage accounts aren’t available for tax-deferred accounts or retirement accounts such as a Roth IRA or 401(k).
Setting Up a Joint Brokerage Account
Setting up a joint brokerage account is fairly simple.
While many people who open joint brokerage accounts are married, you don’t have to be to open a joint account.
You can open a joint brokerage account with anyone you trust, including a partner, parent, sibling, or even a close friend.
Most brokerage firms, including robo-advisors, offer joint brokerage accounts.
You can open an account with companies like Betterment, Wealthsimple, or Vanguard.
In most cases, you can invest in different types of securities, such as mutual funds, exchange-traded funds (ETFs), individual stocks, and bonds.
However, some online brokers limit your investment options, so make sure you review their offerings carefully.
To open an account, you’ll need basic personal and financial information about each account holder.
In general, you’ll need to provide your Social Security number, birth date, address, employer names and address, and banking information to fund your account.
There are three main advantages to opening a joint brokerage account:
1. You can work toward common goals
With a joint brokerage account, you can work together to save and invest toward a common goal.
Whether you’re saving for a new home, planning for retirement, or simply looking to grow your money, you can pool your resources together to help you reach your goals faster.
2. One person can manage the account
When you invest in a joint brokerage account, you can combine your money for investing purposes.
But, you can decide to have one person manage the account.
This approach is a smart option if one person wants to invest, but prefers to be more hands-off.
3. You can keep assets out of probate
If you have an individual brokerage account and pass away, the account will pass to your beneficiary through your will.
However, it will likely go through an extensive and sometimes expensive probate process before your beneficiary can receive the money.
A joint brokerage account bypasses that problem. With a joint brokerage account, the account goes to the other account holder if you pass away, with no need to go through probate.
While opening a joint brokerage account can be a good idea for some, it’s not for everyone.
There are three major downsides to consider:
1. Share responsibility for assets
With a joint brokerage account, the invested assets belong equally to both account holders.
That can be a problem if one of the account holders is in debt and has creditors come after them.
Creditors could seize the assets in the joint account, even if you had nothing to do with the debt.
Opening a joint brokerage account, rather than keeping your accounts separate, exposes you to additional risk.
2. No permission is needed to make changes
If you plan on opening a joint brokerage account, you need to trust the other person completely.
The other account holder is an equal owner of the assets and can make changes to the account without your permission. They can even empty out the account without your consent, which can be a problem if your relationship deteriorates.
No one wants to think that their relationship could change.
Unfortunately, divorce and family strife is common, so it’s important to think about the worst-case scenario when it comes to your money.
3. Tax issues
If you open up a joint brokerage account with anyone besides a spouse, you could cause a gift tax issue.
If the contributions exceed $15,000, you may need to file a gift tax return, and you may need to pay costly taxes.
If you plan on opening a joint brokerage account with a sibling, child, or friend, it’s a good idea to consult with a tax professional or Certified Public Accountant before proceeding.
Joint Brokerage Accounts Compared to Custodial Accounts
If you want to open a brokerage account for a minor, you won’t be able to open it in their name. You won’t be able to open a joint brokerage account, either.
However, you may be able to open a custodial account. The minor technically owns the assets within the account. They just can’t manage them.
Instead, you are the custodian. As a custodian, you make the investments and manage the account on the minor’s behalf. You do not own the assets, though.
You will not pay taxes on them directly. The minor is the responsible party.
When the minor becomes the appropriate age in the state they live in, they gain complete control of the account. This usually occurs between ages 18 and 25.
Tips for Owners of Joint Brokerage Accounts
If you are one of the owners of a joint brokerage account, you should entirely trust everyone else on that account.
Even so, here are some tips to help you manage a joint brokerage account.
Have a clear understanding before you open the account
Before you open a joint account, make sure all parties understand exactly how they work.
Once that is established, both parties must discuss how to make this unique account type work. In theory, it should be used to reach joint goals.
This likely includes things such as:
- How much each person contributes
- How often each person contributes to the account
- What will be invested in
- The investing strategy that determines when to buy and sell investments
- How and when a person can remove their share of investments from the account
Set up account alerts
Setting up ground rules should help keep people on the same page. That said, it’s essential to set up account alerts, too.
Both account holders are full owners. At any point, an owner can deviate from any informal agreement you make.
In fact, they can withdraw the entire amount. They don’t even have to notify the other party.
Account alerts only let you know something happened after the fact. However, you should find out virtually immediately.
This gives you a chance to react. You’ll want to react as fast as possible should something happen.
Without alerts, you’d likely find out when you get an account statement weeks or months later.
Regular strategy and account progress check-ins
After you set up a plan and start investing, your journey as a joint account holder isn’t over.
All joint account holders need to keep up to date with their investments.
You should set regular meetings with all joint account holders. Use these meetings to discuss the investments.
Things you can talk about include:
- If your plan is working as designed
- If you want to make adjustments to the plan
- Whether any actions need to be taken
- How investments are performing
- How do all joint account holders feel about the future of the account
- Anything else you feel needs to be discussed
Depending on how involved the investment strategy is, you may want these check-ins to be weekly, monthly, quarterly, or once a year.
These regular check-ins help make sure everyone is on the same page. It also helps avoid unexpected hiccups that could result in disaster.
Consider using a roboadvisor
Joint account holders may not want the hands-on experience of managing individual investments on their own.
Instead, they could use a roboadvisor to create a strategy based on the owners' goals of the joint account.
The roboadvisor can invest new money and make adjustments based on the strategy set up by technology.
Since technology takes care of trades, you don’t have to worry about a joint account holder forgetting to execute a strategy or simply being busy and putting it off.
With a roboadvisor managing the account, joint account holders simply need to monitor the account and contribute or withdraw money when necessary.
Investing Your Money
If you want to invest your money with a loved one and streamline your finances, opening a joint brokerage account can make a lot of sense.
However, there are some downsides to keep in mind, so make sure you do your homework before opening an account.
If you decide to open a joint brokerage account, check out the best online brokerage accounts to help you get started.
Frequently Asked Questions (FAQs)
Who pays taxes on income from a joint brokerage account?
Usually, a brokerage firm will only issue a 1099 reporting income to the first person listed on a joint brokerage account.
If a couple is married and filing a joint tax return, this doesn’t present any issues. The income would be reported jointly on the tax return anyway.
Joint brokerage accounts held between two people filing separate tax returns may face an issue.
If the income doesn’t all belong to the person that receives a Form 1099 from the brokerage firm, extra work must be done.
The person receiving the 1099 must issue a 1099 to the other person on the account for their share of the income received. This way, the IRS won’t expect all of the income to show up on the one tax return.
This can get complicated. If this impacts you, seek guidance from a tax professional regarding your specific situation, as each situation is unique.
Should spouses have a joint brokerage account?
Whether a married couple decides to have a joint brokerage account is a personal decision.
If a couple has joint accounts for all of their bank accounts, such as checking accounts and savings accounts, chances are they may want a joint brokerage account.
Even so, joint brokerage accounts pose the risk that one spouse could empty the account without the other spouse knowing.
This is because both parties have full ownership of the assets in the account.
Ultimately, you must decide whether this risk is worth the simplicity a joint brokerage account offers a couple with joint finances.
Can I add someone else to an existing brokerage account?
If you have an individual account, you may want to add another person to your brokerage account and make it a joint brokerage account.
Technically, this isn’t something that can be done because it would be considered retitling the account.
Thankfully, most brokerages may have the option to allow you to create a new joint account and move the assets over to that new joint account.
To do this properly, the brokerage would need to move the transaction history, tax data and other important information.
Can I remove myself from a joint brokerage account?
If you have a tenants-in-common or joint tenancy joint brokerage account, you may be wondering if you can remove yourself.
To do this, most financial institutions require every account owner to complete a form. The form must usually be notarized.
The firm may request joint account holders to open new individual accounts in some cases. Then, you can transfer assets out of the joint account before closing it.
How do you split a joint investment account in the case of divorce?
Splitting a joint investment account when you get divorced can be tricky.
The divorce may be amicable and both parties agree on how to divide each person's share of the account without going to court. Then, they can simply transfer the assets to individual brokerage accounts as agreed.
If the divorce gets messy, things may be different. Technically, both spouses have full ownership and can wipe out the account at any time.
The court may order that the investment assets be split a certain way. At that time, you should work with your brokerage firm to get the assets split accordingly.