• Taylor Bauerle

Bauerle Financial: 4 Types of Investment Accounts You Need to Know About

Choices are presented to us in our everyday lives. Some people are completely content doing the same things every day, but for others, variety is the spice of life. Sometimes having too many options is seen as a bad thing, however, in the world of investments the wide range of options provided allows you to protect yourself and your assets through diversification.

With the right type of investment account your savings goals, investing style, and future plans should all be accommodated for. Let’s take a look at some of the different types of investment account options available based on goals, eligibility, and who you want to retain ownership of that account.


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Standard Brokerage Account


The standard brokerage account, sometimes called a non-retirement account or a taxable brokerage account, allows you to invest in a wide range of investments. These investments include things like stocks, bonds, mutual funds, ETFs (exchange-traded funds). Any dividends or interest you earn or receive from these are subject to be taxed in the year that money is received. Also, any gains on investments that you sell are subject being taxed as well.


However, with a standard brokerage account, you have the choice of how it is owned. It is set up either as an individual or a joint taxable brokerage account. As an individual taxable brokerage account, you are the sole proprietor to the account and are responsible for the taxes generated by the account. In a joint account, the responsibility is split between 2 or however many people are tied to that account. Normally joint accounts are for spouses or family members, but you do not have to be a relative of someone to open a joint account.


To be eligible for a standard brokerage account, you need to be at least 18 years of age and have a social security number to open an account. There are no limits about how much money can be put into a taxable brokerage account, and your money can be withdrawn at any time you see fit. Just be aware that it is taxed and if you pull out that money after gains you may owe some money to the government.


Retirement Accounts


A retirement account like an IRA (individual retirement account) has access to the same types of investments as a taxable brokerage account, the only difference is how the government taxes the gains and withdraws from these investments.


The most common types of retirement accounts are 401(k)’s and Roth and IRA’s. If the company you work for matches a percentage for your 401(k) deposit, it is advisable to invest in that account before an IRA of any type. The difference between a traditional IRA and a Roth IRA is when it is taxed. A standard IRA gives you upfront tax breaks in the years that you made your contributions. A Roth IRA gives you a back-end tax break that makes your withdraws in retirement tax-free. There is no such thing as a joint IRA.


To be eligible for an IRA, you or a spouse must have a reported earned income. Unlike a standard brokerage account, there are limits on how much you are allowed to deposit into an IRA, as well as parameters on deductions on traditional IRA’s. The most a person is allowed to deposit into an IRA is $6,000 if you’re below the age of 50 and $7,000 if you’re above the age of 50. There are also penalties for touching that money before the age of 59 ½, but the Roth IRA has fewer penalties than a traditional so keep that in mind when deciding which option to go with.


Education Accounts


Education accounts are used to pay for both primary and secondary education expenses, but more commonly just used for secondary education(college). The 529 savings plan is by far the most popular education saving account. Most states offer their own 529 plan but some brokerages offer them as well.


Another education savings account option is the Coverdell Education Savings Account. The rule of thumb for an education savings account is that it must be set up for the beneficiary before they become a legal adult at the age of 18.


Anyone is allowed to put money into a 529 or any other type of education savings account on behalf of the beneficiary, whether they’re a relative of the recipient or not. However, keep in mind that these contributions are not tax-deductible, but qualified distributions are tax-free.


Investment Accounts for Minors


A custodial brokerage account is an investment account for a minor, or someone under the age of 18. The account is managed and controlled by an adult until the child comes to the age of majority which is either 18 or 21 years old depending on the state in which you reside.


The two main types of custodial accounts are the Uniform Transfer to Minors Act (UTMA) and the Uniform Gift to Minors Act (UGMA). The differences between the two accounts are the types of contributions that are allowed. UTMA accounts are able to hold real estate as well as stocks, bonds, and mutual funds. UGMA is only allowed to hold stocks, bonds, mutual funds, and cash. Unlike an education account, a custodial brokerage account can be spent on anything, not just educational expenses.


The choices may seem overwhelming, but with proper planning and execution, these investment accounts can have a positive impact on you and your loved one’s quality of life.



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Bauerle Financial is a licensed CFP that excels in financial planning, retirement planning, tax planning, and estate planning. We believe that your health, family, friends, and happiness are more important factors to your quality of life than any economic ones.

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