Common Types of Investment Accounts You Should Know
When you begin to invest, it is important to understand the types of accounts available to you and their functions. Each investment account serves a distinct purpose, offering unique features and advantages. Understanding the various options can help you make an informed decision about which accounts may be best for your situation.
Non-Retirement Accounts
Non-retirement accounts, also called taxable accounts are investment account that can be joint or individual. These accounts can give you access to a wide range of potential investment choices, including stocks and bonds. Keep in mind, these accounts are taxable, so any interest or dividends you earn on investments, as well as any gains on investments after you sell, are subject to taxes.
Retirement Accounts
IRA (Individual Retirement Account)
Positioned for long-term retirement planning, IRAs come with tax advantages. Traditional IRAs offer tax-deferred growth, while Roth IRAs provide tax-free withdrawals once you turn 59 ½ and has been at least five years since you first contributed to your Roth IRA.
401(k)
Commonly offered by employers, a 401(k) is a powerful retirement savings tool through payroll deductions as well as employer contributions if offered and eligible. Contributions are often tax-deductible, and earnings can grow tax-deferred until withdrawal or some companies include a Roth 401k options as well.
403(b)
The 403(b) plan is designed for employees of public schools, government associations and other tax-exempt organizations. This plan is similar to the 401(k) plan, allowing its participants to save money for retirement through payroll deductions while enjoying certain tax benefits.
457 Plan
The 457 plan is a tax-advantaged retirement savings plan that is offered to employees of state and local governments, as well as some non-profit organizations. This plan is also similar to the 401(k) plan, allowing its participants to save money for retirement through payroll deductions while enjoying certain tax benefits.
Education Accounts
529 Plan
A type of investment account that can offer federal and state tax benefits to people saving for higher education. These plans are sponsored by particular states but are usually open to anyone. The money in a 529 plan can be used for tuition and other qualified expenses at thousands of colleges, universities, graduate schools and trade and technical schools in the United States and abroad. A 529 can also be used for K-12 with certain yearly limits.
UTMA (Uniform Transfers to Minors Act)
Geared towards minors, UTMA accounts allow assets to be held in a custodial account until the minor reaches adulthood. While this is not exclusively an education savings plan, it provides flexibility in managing assets for a child's benefit.
Coverdell Education Savings Accounts (ESAs)
These accounts are similar to a 529 plan, offering tax-free growth of investments and tax-free withdrawals when the funds are spent on qualified education expenses. However, in addition to college expenses, certain K-12 purchases are also considered qualified when using a Coverdell ESA.
Other Investment Accounts
ABLE Accounts
These accounts are tailored for individuals with disabilities. ABLE accounts provide tax-advantaged savings options, helping individuals with disabilities and their families build financial security.
If you still have questions, or if you are interested in investing and unsure where to begin, our team of experienced Wealth Management by CommunityAmerica Wealth Advisors are here to help you. Schedule a complimentary, no obligation meeting today and receive professional guidance on your path to financial peace of mind.
