Quick Answer
Cash accounts demand full payment; margin accounts add borrowing under Regulation T. Ownership types (individual, joint, custodial, trust, partnership, corporate) each need specific paperwork and set who may trade. Discretionary accounts require written power of attorney, and retirement and educational accounts carry their own contribution and distribution rules.
The whole unit on one sheet: account types, who owns them, who may trade, and the rules the exam loves to test.
Account Types
- Cash account: customer pays 100% of the purchase price by settlement; no borrowing; open to everyone, no approval. Regulation T (Federal Reserve Board) requires full payment on time. Most securities settle T+1.
- Margin account: customer borrows from the broker-dealer; purchased securities are collateral. Needs a margin agreement.
- Credit agreement (required): loan terms and interest rate.
- Hypothecation agreement (required): pledges securities as collateral.
- Loan consent form (optional): lets the firm lend the customer's securities out.
- Options account: needs its own Options Account Agreement, approval by a registered options principal (ROP), and delivery of the Options Disclosure Document (ODD, "Characteristics and Risks of Standardized Options," published by the Options Clearing Corporation) at or before approval.
Numbers to Lock In
| Item | Value |
|---|---|
| Regulation T initial margin | 50% |
| FINRA maintenance margin (long) | 25% |
| Freeriding penalty | 90-day freeze |
| Traditional / Roth IRA contribution (2026) | $7,500 ($8,600 if 50+) |
| 401(k) contribution (2026) | $24,500 ($32,500 if 50+) |
| Required Minimum Distribution (RMD) start age | 73 |
| RMD failure excise tax | 25% |
| Early withdrawal penalty (before 59 1/2) | 10% |
| Coverdell ESA annual limit | $2,000 per beneficiary |
| 529 K-12 tuition | up to $20,000 per year |
| Indirect rollover deadline | 60 days, one per 12 months |
Ownership Types
| Registration | Who controls / trades | Key detail |
|---|---|---|
| Individual | The one owner | Trading authorization lets another trade, not own |
| Joint tenants with right of survivorship (JTWROS) | Any one owner | Share passes to survivor, bypasses probate; undivided interest |
| Tenants in common (TIC) | Any one owner | Share goes to the estate through probate; can set percentages |
| Custodial (UTMA / UGMA) | Custodian for a minor | Minor owns assets; gifts irrevocable |
| Trust | Trustee (the fiduciary) | Firm reviews trust document first |
| Partnership | Per partnership agreement | General partner: unlimited liability; limited partner: capped |
| Corporate / institutional | Per corporate resolution | Uses an Employer Identification Number (EIN), not an SSN |
- Custodial accounts: Uniform Transfers to Minors Act (UTMA) allows broader assets (real estate, patents, fine art); Uniform Gifts to Minors Act (UGMA) is financial assets only. One custodian, one minor. No margin, no short selling, no options.
- Joint accounts: checks and distributions payable to all owners.
Compensation and Authority
- Fee-based: flat fee or percentage of assets under management; suits active traders; risk is reverse churning (fees with little activity).
- Commission-based: per-transaction; suits buy-and-hold; risk is churning (over-trading). Both fall under SEC Regulation Best Interest (Reg BI).
- Discretionary: rep picks the asset, action, or amount; needs a written power of attorney; every trade reviewed by a principal.
- Non-discretionary: customer decides. Choosing only time or price is NOT discretionary.
Retirement and Education
- Traditional IRA: may be deductible, tax-deferred, taxed at withdrawal, RMDs at 73.
- Roth IRA: after-tax, tax-free, no lifetime RMDs. Qualified earnings need age 59 1/2 AND 5 years open; contributions come out anytime tax-free.
- 457 plan: the only employer plan with no 10% early withdrawal penalty.
- Defined benefit: employer bears investment risk. Defined contribution: employee bears it.
- 529 plan: state-sponsored, contributor keeps control, no income limits, no age deadline.
- Coverdell ESA: $2,000 cap, income limits, funds used by age 30.
Memory Aid
- JTWROS has "survivorship" right in the name, so it survives to the other owner.
Top Gotchas
- Freeriding is selling before paying, not day trading; penalty is a 90-day freeze, not closure.
- Loan consent form is optional; the other two margin agreements are required.
- Revocable trusts do NOT save estate taxes; only irrevocable trusts do.
- Institutional customers have different suitability standards, not lower ones.
- RMDs cannot be rolled over; they must be taken and taxed.
One-Breath Recap
Pick the account type, gather the right paperwork, confirm who may trade, and match the compensation model to how the customer actually invests. Nail the ownership distinctions and the retirement numbers and the account questions answer themselves.
Need more than the recap? This is a condensed summary. If it is not enough, read the full Customer Accounts unit for the complete lesson.