Set Up Your Investment Accounts
1.Standard Brokerage Account
This is your do-it-yourself investing account. You can buy a wide variety of assets: stocks, ETFs, bonds, mutual funds, and more.
Taxable: This account is taxable, so you’ll pay taxes on dividends, interest, and capital gains (any money you made essentially) in the year you earn them.
Types:
Individual Account: One person owns and manages it, and is responsible for paying the taxes on the account.
Joint Account: Shared ownership, often between spouses or business partners, and shared responsibility.
Best for: Anyone who wants access at any time, meaning you can sell assets and withdraw money whenever you want, without early withdrawal penalties (some accounts have fees for withdrawing early!).
2.Retirement Accounts
Retirement accounts come with tax advantages designed to help you long-term. The downside? Limited access until retirement age, meaning you cannot easily access the money once you invest it into a retirement account.
The IRS sets guidelines and employers set certain criteria for this type of account, and many employers will match what you put into this account. Retirement accounts are often offered by employers or opened individually through a brokerage.
Types:
Traditional IRA & 401(k):
You can get tax breaks on contributions to this account now which reduces the amount of taxes you will pay this year, but you generally pay income taxes when you take money out of this account in retirement.Roth IRA & Roth 401(k):
You contribute money after you pay taxes so your taxes are not reduced now, but when you take out money from this account in retirement it is tax-free.
Key difference: You need to think about whether you prefer to pay taxes now or in retirement and when you will have the lowest taxes rate is when you want the tax benefits to apply. If you are unsure you can also split money between these accounts.
If your employer offers a 401(k) match, always start there as it’s essentially free money!
Best for: Long-term investors focused on building retirement wealth while managing tax impact. ¹ ²
Final Thoughts:
There are many more types of investment accounts, this is just a starting point. Just like you might use different credit cards for different benefits, you can use a mix of accounts to meet short- and long-term goals.
Viewpoints, F. (2024b, October 1). Roth IRA or traditional IRA or 401(k). https://www.fidelity.com/viewpoints/retirement/spender-or-saver
Investment accounts: 5 types, how to choose. NerdWallet. (n.d.). https://www.nerdwallet.com/article/investing/types-investment-accounts-know
