An individual account is a financial account held in one person’s name, meaning that person alone controls deposits, withdrawals, and investment decisions, and that person alone is responsible for the taxes on anything the account earns. The structure applies across the board: a checking account, a savings account, a brokerage portfolio, an IRA, and a 401(k) are all individual accounts. What changes from one to the next is how the tax code treats the money inside.
What an Individual Account Is
One person holds full legal title. The financial institution ties the account to that person’s Social Security number, and every Form 1099 reporting interest, dividends, or investment gains goes out under that number. The owner then reports all of that income on their personal Form 1040.
That is different from a joint account, where two or more people share access and share the tax reporting. It is also different from accounts owned by an entity like an LLC or a trust, which are separate legal arrangements with their own tax filings. A trust, for example, files its own return on Form 1041 once it has taxable income or gross income of $600 or more.1Internal Revenue Service. About Form 1041, U.S. Income Tax Return for Estates and Trusts
What You Can Do Alone, and What No One Else Can Do
Sole ownership cuts both ways. You can buy, sell, deposit, withdraw, name a beneficiary, or close the account without anyone else’s signature. No spouse, child, or parent can do any of those things on your behalf without legal authorization, even in an emergency. That gap matters for incapacity planning, covered later in this article.
How a Taxable Individual Account Is Taxed
Individual accounts outside the retirement umbrella, including standard brokerage accounts, savings accounts, and CDs, carry no special tax shelter. Every dollar of income is taxable in the year it is earned.
Interest, Dividends, and Short-Term Gains
Interest from bank accounts and CDs, ordinary dividends, and short-term capital gains on investments held one year or less are taxed as ordinary income at your regular federal rate. Banks report interest of $10 or more on Form 1099-INT.2Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID Brokerages report dividends on Form 1099-DIV under the same $10 threshold.3Internal Revenue Service. Instructions for Form 1099-DIV The IRS gets a copy of each form, so these amounts have to appear on your return.
Long-Term Capital Gains
Investments held longer than one year qualify for lower long-term capital gains rates when sold at a profit.4Internal Revenue Service. Topic No. 409 Capital Gains and Losses For 2026, single filers pay 0% on long-term gains up to $49,450 in taxable income, 15% on gains above that threshold, and 20% once taxable income exceeds $545,500. For married couples filing jointly, the 15% bracket begins at $98,900 and the 20% bracket at $613,700.
High earners owe an additional 3.8% net investment income tax on top of those rates. The surtax applies when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly. Those thresholds have not been adjusted for inflation since the tax took effect in 2013, so more taxpayers cross the line each year.5Internal Revenue Service. Net Investment Income Tax
Using Losses to Cut Your Bill
A taxable individual account lets you use investment losses to reduce taxes, which retirement accounts don’t. Capital losses first offset capital gains dollar-for-dollar. If losses exceed gains for the year, you can deduct up to $3,000 of the remaining net loss against ordinary income, or $1,500 if married filing separately.6Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses Any unused loss carries forward indefinitely. You report the math on Form 8949, with totals flowing to Schedule D of your Form 1040.7Internal Revenue Service. About Form 8949 – Sales and Other Dispositions of Capital Assets
Individual Accounts Used for Retirement
Every major retirement vehicle in the U.S. is structured as an individual account. The account is legally yours, but the tax code imposes contribution limits and withdrawal rules in exchange for the tax break.
Traditional and Roth IRAs
For 2026, the annual contribution limit for both Traditional and Roth IRAs is $7,500. If you are 50 or older, a catch-up contribution of $1,100 brings the total to $8,600.8Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
The two types work in opposite directions. Traditional IRA contributions may be deductible in the year you make them, and the money grows tax-deferred until you withdraw it in retirement. Roth IRA contributions are made with after-tax dollars, but qualified withdrawals are tax-free once you are at least 59½ and have held the account for at least five years.
Income limits apply to both. If you are covered by a workplace retirement plan, the Traditional IRA deduction phases out between $81,000 and $91,000 of modified AGI for single filers in 2026, and between $129,000 and $149,000 for married couples filing jointly. Roth IRA contributions phase out between $153,000 and $168,000 for single filers and between $242,000 and $252,000 for joint filers.
Going over the limit triggers a 6% excise tax on the excess for every year it sits in the account.9Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities The penalty compounds annually until you pull the excess out.
401(k), 403(b), and 457 Plans
A 401(k) or 403(b) is legally an individual account inside a larger plan trust. The assets belong to you, not your employer, and federal law under ERISA generally protects them from your employer’s creditors.10U.S. Department of Labor. FAQs About Retirement Plans and ERISA
The 2026 employee contribution limit for 401(k), 403(b), and most 457 plans is $24,500. Workers 50 and older can add a standard catch-up of $8,000, bringing the total to $32,500. Workers aged 60 through 63 get a higher catch-up of $11,250 under a SECURE 2.0 provision, allowing total deferrals up to $35,750.8Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
SEP and SIMPLE IRAs
SEP IRAs are funded entirely by employer contributions. Employees cannot defer their own salary. The employer can contribute up to 25% of compensation, capped at $72,000 for 2026.11Internal Revenue Service. SEP Contribution Limits (Including Grandfathered SARSEPs)
SIMPLE IRAs combine employee salary deferrals with mandatory employer contributions. For 2026, the employee deferral limit is $17,000, with a $4,000 catch-up for those 50 and older.
Custodial Accounts When the Owner Is a Minor
Minors generally cannot own financial accounts in their own name. Custodial accounts under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) solve the problem. An adult custodian manages the account, but the minor is the legal owner, the account is tied to the child’s Social Security number, and contributions are irrevocable.
When the minor reaches the age of majority under state law, typically between 18 and 25, the custodian must hand over full control. At that point the former minor can spend the money on anything, which is where custodial accounts sometimes create regret for parents who funded them generously.
Watch the kiddie tax. A child’s unearned income above $2,700 in 2026 can be taxed at the parent’s marginal rate rather than the child’s lower rate. This applies to children under 18, to 18-year-olds who don’t earn more than half their own support, and to full-time students aged 19 through 23 who meet the same support test.12Internal Revenue Service. Topic No. 553, Tax on a Child’s Investment and Other Unearned Income The rule can erase much of the expected benefit of shifting assets to a child’s account.
What Happens If the Institution Fails
Protection depends on the kind of institution holding the account, and it covers institutional collapse, not investment losses.
Bank deposits in individual accounts are insured by the FDIC up to $250,000 per depositor, per FDIC-insured bank, per ownership category.13FDIC. Understanding Deposit Insurance Accounts at two different banks are separately insured to the full $250,000. Two individual accounts at the same bank share one $250,000 limit.
Brokerage accounts are covered by SIPC up to $500,000 in securities and cash if a brokerage firm fails, with a $250,000 sublimit on cash.14SIPC. What SIPC Protects SIPC does not protect against market losses or bad investment picks. It steps in only when a brokerage becomes insolvent and customer assets are missing.
Individual Accounts Held Abroad
If you hold an individual account at a financial institution outside the United States, two separate federal reporting duties may apply.
The first is the Report of Foreign Bank and Financial Accounts (FBAR). You must file if the combined value of all your foreign financial accounts exceeds $10,000 at any point during the calendar year.15FinCEN.gov. Report Foreign Bank and Financial Accounts The FBAR goes to FinCEN, not the IRS, and is filed electronically through the BSA E-Filing System.
The second is Form 8938, required under the Foreign Account Tax Compliance Act (FATCA). Single taxpayers living in the U.S. must file if foreign financial assets exceed $50,000 on the last day of the tax year or $75,000 at any point during the year. For married couples filing jointly, those thresholds are $100,000 and $150,000.16Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets Form 8938 goes with your tax return, so the two filings serve different purposes even where their coverage overlaps.
Planning for Incapacity
Sole ownership creates a practical problem if the owner loses mental capacity. No one else can legally access the account, pay bills from it, or manage the investments unless the owner planned ahead.
The standard tool is a durable power of attorney, a legal document that authorizes someone you choose (your “agent”) to manage your financial affairs if you can’t. The word “durable” matters: it means the authorization survives your incapacity rather than expiring at the moment you need it. A standard, non-durable power of attorney becomes useless the moment the account holder loses capacity.
Without one, the family typically has to go to court to get a guardian or conservator appointed. That process is slow, public, and expensive.
What Happens When the Owner Dies
Because only one person owns the account, death raises an immediate question about where the money goes. The answer depends on whether the owner named a beneficiary.
Transfer on Death and Payable on Death
Most brokerages and banks allow a Transfer on Death (TOD) or Payable on Death (POD) designation. When the owner dies, the named beneficiary presents a death certificate and takes ownership directly, bypassing probate. It costs nothing to set up.
Without a beneficiary designation, the account becomes part of the deceased owner’s probate estate and is distributed under the will, or under the state’s default inheritance rules if there is no will. Probate can take months and generates court costs that a beneficiary designation would have avoided.
The Step-Up in Basis
For taxable individual accounts holding appreciated investments, the tax result at death is actually favorable for heirs. When someone inherits property from a deceased person, the cost basis resets to the asset’s fair market value on the date of death.17Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent If a parent bought stock for $10,000 and it was worth $100,000 at death, the heir’s basis becomes $100,000. Selling the next day at $100,000 produces zero capital gains tax.
The step-up applies to stocks, bonds, mutual funds, real estate, and similar appreciating assets. It does not apply to retirement accounts like IRAs and 401(k)s, which are taxed as ordinary income when the beneficiary takes distributions. Cash and CDs don’t benefit either, because they don’t appreciate.
Federal Estate Tax
Individual account assets count toward the deceased owner’s taxable estate. The federal estate tax exemption for 2026 is $15,000,000 per person, following the increase enacted in the One, Big, Beautiful Bill signed into law in July 2025.18Internal Revenue Service. What’s New — Estate and Gift Tax Estates below that threshold owe no federal estate tax. Some states impose their own estate or inheritance taxes at lower thresholds, so the federal number doesn’t tell the full story in those states.