11 Types of Investment Accounts You Have To Consider

There are four key types of investment accounts you need to know about: employer-sponsored plans, individual retirement plans, taxable investment accounts, and tax-advantaged investments. For most people, these four key types of investment accounts will be what you need to look for to make the best investments for your lifestyle. 

Employer-Sponsored Plans 

Your employer-sponsored retirement investment account should be the foundation of your investment plan. Many employers will match your contribution into your employer-sponsored plan, which is essentially free money that can significantly boost your financial future. You should always look to max your employer’s contribution before thinking about investing in other accounts, but it’s usually not worth exceeding their maximum matched contribution. 

Here are some of the most common employer-sponsored plans:  

401(k) 

A 401k plan is one of the most well-known forms of employer-sponsored investment retirement accounts. A percentage of your income from each paycheck will be paid into your 401(k) before you receive it, and your employer may match your contribution (or a percentage of it). Make sure you choose a plan that has a reasonable level of risk for your life stage (i.e., riskier when you’re young and less risky as you near retirement). 

You must start withdrawing money by the time you’re 72, and any money withdrawn before the age of 59.5 will be charged an additional tax of 10%.  

Limits: For 2022, the maximum limit is $61,000 including employer contributions ($20,500 + $6,500 for individuals). 

Fees: Your employer will usually cover fees, otherwise they’re minimal. If you leave the company you opened the 401(k) with, you may be subject to additional fees. 

Best for: Anyone and everyone. 

403(b) 

This type of retirement plan is essentially the same as a 401(k), the only real difference is it’s designed for people working for tax-exempt businesses. They have the same limitations and withdrawal rules as a 401(k). 

Limits: The same as they are for 401(k)s – $61,000 including employer contributions, or $20,500 + $6,500 individually. 

Fees: Usually a small annual management fee. 

Best for: Anyone and everyone. 

457 

This is another form of the above plans, but this is for government employees. They’re subject to the same limitations and withdrawal rules, however they usually have less severe withdrawal penalties. 

Note: Your employer can offer any or even all of the above plans, and if yours does, you are allowed to fund two forms. 

SEP IRA 

A SEP IRA only allows your employer to make contributions on their behalf and yours, meaning you have less control over your contributions. They’re a simple form of IRA, which is why some employers choose them (typically small employers). 

Limits: $61,000 contribution total. 

Fees: They’re subject to the same taxes as other retirement plans, and usually have a small annual management fee. 

Best for: If it’s the only plan being offered by your employer. 

All retirement accounts (including the individual retirement accounts we’ll cover below) are subject to tax breaks. Depending on the type of retirement account, you will get a tax break when you deposit or when you withdraw. 

Note: If you are self-employed, there are other options available to you that will serve the same function. 

Individual Retirement Accounts 

Individual retirement accounts (IRAs) are retirement investment accounts you set up, and are free to contribute to however you please. IRAs have maximum contributions each year, which is currently $6,000 (or $7,000, if you’re over 50). 

Like other retirement accounts, there are penalties for withdrawing before the age of 59.5 or failing to start withdrawing by the age of 72. 

Traditional IRA 

This form of IRA is designed to be paid into and left alone until you reach retirement age, and there are penalties for withdrawing money before maturity. With a traditional IRA, you pay tax upon withdrawal, but you are not charged income tax on your earnings and withdrawals. 

Limits: $6,000 annual deposit limit. 

Fees: Usually a small annual management fee. 

Best for: Anyone who does not have an employer-sponsored plan or who does and wants to contribute to another strict retirement plan. 

Roth IRA 

If you believe you may have cause to withdraw money from your IRA before you reach retirement age, a Roth RIA will be the better option for you, because they offer more penalty-free withdrawal options. 

Limits: $6,000 annual deposit limit. 

Fees: Usually a small annual management fee. 

Best for: If you want to save for retirement but are worried about locking away money you may need for a big life event in the future. 

Taxable Investment Accounts 

Individual Brokerage Account 

An individual brokerage account (also known as a standard brokerage account, taxable brokerage account, or non-retirement account) allows you to access a large range of investment types, including stocks, bonds, mutual funds, ETFs, and more. Dividends and interest earned on your investments in these accounts are subject to tax (in the year it is received), as well as any gains you make on assets you sell. 

There are two types of individual brokerage accounts; a cash account and a margin account. The majority of people need a cash account, as it allows you to easily buy investments with the money you deposit. Margin accounts allow you to practice margin trading, which is where you borrow money from the broker to make investments. This is a much more advanced form of trading and comes with a much higher level of risk. 

Limits: There usually are no contribution or withdrawal limits.  

Fees: The majority of accounts don’t charge a fee for trades. Most make their money via a monthly or annual management fee or a withdrawal fee, so make sure you find out how you’ll be charged and do your best to minimize those fees. 

Best for: Anyone who feels confident in their retirement account(s) and is ready to build their portfolio through a variety of assets. Choose your platform according to how much (or how little) control you want over what assets you own. 

Money Market Funds

A money market fund (which is not the same thing as a money market account, which is a general savings account offered by banks and credit unions) is a form of mutual fund that includes short-term investments like certificates of deposit, U.S. Treasuries, repurchase agreements, and more. 

Money market funds usually have a low bar to entry and you can buy and sell shares at any time.   

Limits: Rarely any contribution or withdrawal limits. 

Fees: Some money market funds are tax-free, while most aren’t. If it is taxable, any returns are usually subject to standard federal and state income taxes. 

Best for: Diversification once you have other investment accounts in place. 

Tax-Advantaged Investments 

529 Savings Account 

Also known as an education plan or account, 529 savings accounts allow you to save money ahead of time to pay for college tuition and expenses. Anyone can contribute to these accounts, so they’re a great investment if you have a child you expect to attend university. 

Limits: Generally no limits. 

Fees: Most distributions are tax-free, and there’s usually an account management fee of $10 – $25. 

Best for: Anyone either planning to go back to school 5-10 years from now, or more commonly, setting up the account for their child, grandchild, niece, or nephew.  

Note: This type of account is different from 529 prepaid tuition plans, which allow you to prepay for tuition at a certain state’s university. 

Health Savings Account 

A health savings account (HSA) allows you to save for health-related expenses. Some HSAs are employer-sponsored, in which case your contribution will be taken from your paycheck before you’re paid. They’re a good way to reduce your tax bill. 

Limits: $3,650 + $1,000 for individuals, $7,300 + $1,000 for families, any money withdrawn for a non-medical purpose is subject to 20% additional tax until you’re 65, after which you can withdraw without penalty. 

Fees: There are no taxes for withdrawing to pay for a medical expense. Most charge an annual management fee, and some may charge a withdrawal fee. 

Best for: Anyone concerned about future medical expenses that aren’t covered by their medical insurance and meet the following requirements: you are enrolled in an HDHP, do not receive Medicare, you can’t be covered under any disqualifying health coverage, and you aren’t a dependent on someone’s tax return. 

Flexible Spending Account 

A flexible spending account (FSA) (sometimes called a flex spending arrangement) is exclusively offered through employers, so if your employer doesn’t offer an FSA, you cannot open one independently, unlike HSAs. 

Like other employer investment plans, your contribution is taken from your paycheck before you are paid, meaning you save money on your federal taxes. 

One thing that makes FSAs unique is the money must be used by the end of the year (though some will offer a grace period). 

Limits: $2,850 for individuals, $5,000 for married couples 

Fees: There’s usually a fee for your employer, but it’s unlikely they’ll pass it on to you. 

Best for: If your employer offers one, it’s a great way to–legally!–avoid paying more taxes. There’s really no reason not to make the most of it, just make sure you remember to use it. 

How do I pick the right account(s) for me? 

Make sure you have an overall plan and goal for your investments – what are you looking to do by putting this money away? You should always prioritize your retirement plan, but once you’re maximizing your employer’s contributions, it’s up to you how you continue to save. Consider what you plan to do now and in the future, as well as your age, and choose investment accounts accordingly. Once you’re taking advantage of any plans offered by your employer, look to taxable investment accounts to start diversifying your portfolio further. If you’re interested in learning more about securing your financial future, or if you want to find the best investment platforms for you, continue learning here.