What is a stocks IRA and how does it work?

This content is for informational purposes only and isn’t tax advice. Crypto.com Stocks doesn’t provide tax advice – please consult a qualified tax professional regarding your specific situation.

What is a stocks IRA?

A stocks IRA is an Individual Retirement Account that allows investments in publicly traded securities such as stocks and ETFs (and often cash equivalents). Like other IRAs, it can offer tax advantages for setting money aside. 

Many retirement savers choose stock and ETF exposure because it can offer access to broad markets and long-term growth potential. At the same time, market prices can rise or fall, and past performance doesn’t guarantee future results.

How does a stocks IRA work?

A stocks IRA works like a retirement account wrapper around your investments. 

1. Custodial structure, contributions and reporting

Your IRA is held with a custodian-supported brokerage account that facilitates contributions, transactions and IRS reporting consistent with IRA rules.

2. Tax treatment: Traditional vs Roth

• Traditional IRA: Contributions may be tax-deductible for some filers and investment growth is generally tax-deferred until withdrawals.
• Roth IRA: Contributions aren’t deductible and qualified withdrawals can be tax-free if rules are met.

3. Contribution limits

For 2026, total contributions across your traditional and Roth IRAs are limited to $7,500 (or $8,600 if age 50+), subject to eligibility and compensation rules.¹ Limits can change annually. 

4. Withdrawal rules and potential penalties

IRAs are designed for retirement. In general, withdrawals before age 59 ½ may trigger taxes and an additional penalty unless an exception applies. (Rules and exceptions are detailed in IRS guidance.)

How IRA investing differs from a taxable brokerage account

A key difference is tax treatment. In a taxable account, sales can create taxable events in the year they occur. Inside an IRA, taxes are handled according to IRA rules,² which can change how investors think about time horizon and rebalancing.

Benefits and risks of a stocks IRA

1. Tax advantages

Depending on IRA type, potential benefits may include tax-deferred growth (traditional) or tax-free qualified withdrawals (Roth). Outcomes depend on eligibility and rules, and investment values can decline.

2. Long-term growth potential

Stocks have historically delivered long-term growth across many multi-decade periods, though returns vary by timeframe and are never guaranteed. A Stocks IRA is simply a way to hold that exposure in a tax-advantaged retirement structure. 

3. Diversification

IRAs may hold a mix of stocks and ETFs, which can spread exposure across sectors, styles and company sizes. Diversification is commonly used to avoid reliance on a single holding, but it doesn’t eliminate risk or guarantee profits. Concentration is still possible – holding a small number of positions, or focusing heavily on one sector or theme, can increase exposure to company- or sector-specific price swings.

4. Automated or passive investing strategies

Many investors use ETFs or index-tracking approaches to simplify broad market exposure. Even diversified funds can fluctuate and market risk still applies.

5. Volatility

Stocks and ETFs can be volatile, and you can lose money – including part or all of your principal – especially over shorter time periods. Market downturns can reduce your IRA value at the exact time you need liquidity.

6. Rules and regulations

IRA rules can also create constraints. Withdrawals before age 59 ½ may trigger taxes and penalties unless an exception applies, and selling investments at a loss to access cash can lock in that loss.

Contribution limits, eligibility rules and tax treatment may change over time, and IRS requirements can affect how and when funds are accessed. Consult your tax advisor for information on your individual tax situation.

How to buy stocks and ETFs in an IRA

Buying inside an IRA generally follows the same market mechanics as a brokerage order, with the difference that the account is governed by IRA rules and custodial administration.

A few practical points that matter to beginners:

• Eligible assets: IRAs commonly hold stocks and ETFs, depending on the brokerage and product offering.
• Fractional shares: Fractional trading may help spread dollar amounts across multiple holdings, rather than needing to buy full shares.
• Contribution tracking: Contributions are capped annually and investors often monitor totals across IRA accounts.
• ETFs as a simplified tool: ETFs can provide broad exposure in a single trade, though they still carry market risk.

Roth IRA vs. traditional IRA: Key differences

For more detail, IRS Publication 590-A and the IRS Roth IRA overview are helpful primary sources.

FAQs about stocks IRAs

What is a stocks IRA?

A Stocks IRA is an IRA that can hold stocks and ETFs within a tax-advantaged retirement account structure governed by IRS rules. It’s designed for long-term retirement saving, and investment values can rise or fall.

Can you buy stocks in a Roth or traditional IRA?

Yes, both Roth and traditional IRAs may hold stocks and ETFs, depending on the brokerage and eligible assets. The main difference is how contributions and qualified withdrawals are taxed.

What are the tax benefits of stock investing in an IRA?

Traditional IRAs generally offer tax-deferred growth, while Roth IRAs can offer tax-free qualified withdrawals if rules are met. Tax outcomes depend on eligibility, holding periods and IRS requirements.

Roth vs traditional IRA – which is more suitable?

People often compare current versus future tax rates, plus eligibility rules and deduction limits. Because circumstances vary, many investors review IRS guidance or consult a tax professional for individualized decisions.

What are the IRA contribution limits?
For 2026, total contributions across your traditional and Roth IRAs are limited to $7,500 (or $8,600 if age 50+), and other contribution limits may apply and are subject to eligibility and compensation rules. Limits can change annually. 

Can I roll over an existing IRA or 401(k)?

Many IRAs can be funded via rollover, but the rules depend on the account type and the institutions involved. If you’re considering a rollover, it’s common to confirm whether it’s a direct transfer and how it’s reported.

* Other fees may apply. 

¹ IRS, 2025

² IRS, 2025

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All investments involve risk, and not all risks are suitable for every investor. The value of securities may fluctuate and as a result, clients may lose more than their original investment. The past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit or protect against loss in a down market. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing.