Step 5: Know investment account types

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STEP 5 OF 7

Know investment account types

Being smart about using different account types can help you reach your goals in an efficient way.

Build your wealth with a general investing account

If you’re looking to buy a home, save for a trip around the world or build your wealth, a general investing (taxable brokerage) account may be a good choice for you. Because there are no special tax advantages with this type of account, you generally have more flexibility, including:

No age or income limits

No contribution limits or deadlines

No early-withdrawal tax penalties

Investment accounts that help you save for retirement

You may be able to save for retirement through tax-advantaged accounts—like 401(k) plans, IRAs (individual retirement accounts) and other accounts.

Traditional and Roth IRA: The two main types of IRAs, each with meaningful tax differences

401(k) and 403(b): Employer-sponsored retirement accounts that may offer employer matching

SEP IRA, Solo 401(k), Simple IRA: Retirement accounts for self-employed individuals or small business owners

Traditional IRA: You may be able to deduct your contributions from your income for tax purposes, but you’ll likely have to pay taxes when you withdraw your money.

Roth IRA: You may be able to contribute after-tax dollars, and you don't have to pay federal tax on qualified distributions. You can only contribute if your income is below a certain level.

Which one is right for you?

Typically, if you are a younger saver and your taxes are at relatively low rates, you may want to consider a Roth IRA. As you move into higher tax brackets, it may be a good time to think about opening a traditional IRA.
You may be able to have both. Having a healthy mix of traditional and Roth IRA savings can give you flexibility in retirement.

Consider saving at least 15% of your pre-tax annual income every year toward retirement.
Contribute first to tax-advantaged accounts, like 401(k) plans and IRAs. 401(k) plans generally have higher annual contribution limits, potentially allowing you to save more.
If you have access to employer matching contributions through a workplace plan, like a 401(k) or 403(b), consider contributing at least enough to receive the full match amount.
Round out your savings with a general investing account.
If you switch employers, you may be able to roll your current 401(k) balance into an IRA, move it to your new 401(k) or keep it where it is. Learn more about how to roll over a retirement account to Chase.

Investment accounts to help you save for education expenses

If saving for future education costs is top of mind for you or your family, there are dedicated accounts with different tax advantages that can help you plan.

529 Plan: A tax-advantaged investment account designed as a way to save for education expenses. You can use 529 plans for K-12 tuition, in addition to college and graduate school. You’re limited to the investment options offered by the 529 plan you choose.

Coverdell/Education Savings Account (ESA): A tax-advantaged account that you can use for any level of education. You can only contribute up to $2,000 per year, per beneficiary, but you may not be able to contribute if your income is too high.

UGMA (Uniform Gift to Minors Act) and UTMA (Uniform Transfer to Minors Act): Specialized custodial accounts that can be used for a child's general benefit. These accounts may be used to cover a broad range of expenses, not just educational expenses. Keep in mind: Since custodial accounts are considered assets of the minor, they may limit financial aid eligibility.

Understand the costs. Costs are high today and will likely be even higher when your children attend college.
Don’t expect more free financial aid than you're likely to receive. The average grant covers only 11% of the costs at a four-year public university, while the average scholarship covers just 12%.
Don’t let financial aid stop you from investing. It’s a common misconception that investing for college will hurt your chances for financial aid. The fact is family income counts much more than assets in the formula for awarding federal aid.
Don’t count on cash. Cash has historically underperformed tuition inflation. Instead of just saving, investing that cash can give you the higher return potential needed to grow college funds and keep pace with rising costs.

Good to know

There is no magic number of accounts that you should have. As you save for each of your goals, consider what types of accounts make the most sense for what you are trying to achieve. Keep in mind that different account types provide different benefits.

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Step 5: Know investment account types

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