Investing your money is a great way to help it grow over time. There are many different types of investment accounts, each with their own tax advantages and uses. Retirement accounts, such as 401(k)s and Roth IRAs, are designed to hold your retirement savings. Brokerage accounts are fully taxable accounts that are funded with after-tax dollars and are great for creating a diversified portfolio of investments. Other types of investment accounts include 529 plans, money market accounts, and high-yield savings accounts. In this article, we’ll take a closer look at 8 types of investment accounts, their tax advantages, and how to use them.
Retirement Accounts. These investment accounts are specifically designed to hold your retirement savings. Each one has its own tax advantages. Traditional 401(k)s are funded with pre-tax dollars, which means you don’t have to pay taxes on the money until you withdraw it. Roth IRAs are funded with after-tax dollars, which means you’ll get the full benefit of the tax-free growth of your investments.
529 Plans. These investment accounts are specifically designed for college savings. They offer tax-free growth and tax-free withdrawals when used for qualified educational expenses. There are two types of 529 plans—college savings plans and prepaid tuition plans. Both offer tax advantages and are great ways to save for your child’s future education.
Money Market Accounts. Money market accounts are a type of savings account that offer higher interest rates than traditional savings accounts. They’re a great way to safely store your money and earn some interest. Many banks have “youth accounts” that allow you to invest in money market funds with lower minimum balance requirements.
High-Yield Savings Accounts. These accounts offer higher interest rates than traditional savings accounts, and they’re a great way to save for short-term goals. They’re also FDIC-insured, so your money is safe even if the bank fails.
Treasury Notes. Treasury notes are a type of investment issued by the U.S. government. They offer a fixed rate of return and are backed by the full faith and credit of the U.S. government. They’re a great way to diversify your portfolio and earn a steady income.
Treasury Inflation-Protected Securities (TIPS). These are a type of Treasury security designed to protect your investments from inflation. They adjust their principal value with changes in inflation, so your money is protected from the effects of rising prices.
Real Estate. Real estate is another great way to invest your money. It can provide a steady income stream in the form of rental income, and it can also appreciate in value over time. Investing in real estate can be a great way to diversify your portfolio and build wealth.
Fully Taxable Accounts. Fully taxable accounts, such as brokerage accounts, are funded with after-tax dollars and are great for creating a diversified portfolio of investments. These accounts offer tax advantages, such as lower capital gains rates, and can be used to invest in stocks, bonds, ETFs, and other investments.
