• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

The College Investor

Student Loans, Investing, Building Wealth

  • About
  • Podcasts
  • Research
  • Contact
  • Save For College
      • How To Start

      • How To Save For College
      • How To Pay For College
      • What Is the Average Cost of College?
      • What Is A 529 Plan and Where to Open One in Your State
      • How Much Should You Have In A 529 Plan By Age
      • How To Use A 529 Plan For Private Elementary And High School
      • What Are Qualified Expenses For A 529 Plan (And What Doesn’t Count)?
      • The Best Brokers To Open A 529 Plan
      • Tools + Accounts

      • 529 Plans: The Ultimate College Savings Plan
      • 529 Plan Contribution Limits
      • Prepaid Tuition Plans | What To Know
      • Understanding And Using 529A ABLE Accounts
      • Using A Roth IRA To Save And Pay For College
      • FAFSA Deadlines for Financial Aid
      • CollegeBacker Review
      • Upromise Review
      • UNest Review
      • Other Options

      • Student Loan And Financial Aid Programs By State
      • The Guide To Military And VA Education Benefits
      • How To Fill Out The FAFSA
      • How To Find College Scholarships
      • The Best College Scholarship Search Websites
      • How To Find Grants To Pay For College
      • Pell Grants: What They Are And How To Qualify
      • Understanding Federal Work-Study
      • How To Use A 529 Plan If Your Child Doesn’t Go To College
  • Student Loans
      • Borrowing

        • How Student Loans Work
        • How To Apply For A Student Loan
        • Best Student Loans And Rates In June 2023
        • 10 Best Private Student Loans Of June 2023
        • Best Student Loans To Pay For Graduate School
        • Best Student Loans For Medical School
        • Parent Loans To Pay For College
        • No-Cosigner Student Loan Options
        • Guide To Income Sharing Agreements (ISAs)
        • Best International Student Loans
      • Get Out Of Debt

        • Best Student Loan Refinance Companies In June 2023
        • Best Student Loan Repayment Plans
        • Best Student Loan Refinancing Bonuses And Promotional Offers Of June 2023
        • Student Loan Forgiveness Programs (The Complete List)
        • The Full List Of Student Loan Forgiveness Programs By State
        • Public Service Loan Forgiveness (PSLF)
        • Top Student Loan Scams
        • Average Student Loan Monthly Payment
        • Average Student Loan Debt By Year
      • Reviews

        • Credible Review
        • Splash Review
        • Ascent Review
        • Citizens Bank Review
        • Earnest Review
        • ELFI Review
        • Laurel Road Review
        • LendKey Review
        • SoFi Review
        • Sallie Mae Review
  • Investing
      • How To Start

        • How To Start Investing in High School
        • How To Start Investing In College
        • How To Start Investing In Your Twenties For 22 – 29 Year Olds
        • How To Start Investing In Your 30s For 30 – 39 Year Olds
        • How To Start Investing With $100 Or Less
        • How To Give Kids The Gift Of Stock
        • What Is Dividend Growth Investing
        • IRA Rollover Chart
      • Tools + Accounts

        • Best Online Stock Brokers
        • The Best Traditional And Roth IRA Accounts
        • The Best Robo-Advisors
        • The Best Investing Apps
        • The Best Places to Trade Options
        • The Best Places To Open A Health Savings Account
        • The Best Solo 401k Providers
        • The Best Self-Directed IRA Providers Of 2023
        • Best Cryptocurrency Exchanges
      • Reviews

        • Vanguard Review
        • Fidelity Review 2023
        • M1 Finance Review
        • TD Ameritrade Review 2023
        • Charles Schwab Review
        • Robinhood Review
        • Webull Review
        • Betterment Review 2023
        • Wealthfront Review
  • Earn More Money
      • Extra Income

        • 20 Best Side Hustles You Can Start Earning With In 2023
        • 54 Side Hustle Ideas To Make Money Fast In 2023
        • 100 Ways To Make Money In College In 2023
        • 80 Ways To Make Money From Home In 2023
        • 5 Quick Money Making Ideas (That Take Less Than 1 Hour)
        • 10 Interesting Ways You Can Make Money Driving
        • High-Paying Side Gigs That Earn $1,000 or More Per Month
        • The 10 Best Money-Making Apps
        • Best Paid Survey Site List: Earn Money For Giving Your Opinion Online
        • 10 Crazy Ways To Make $10,000 You’ve Never Heard Of
      • Build Wealth

        • 40 Passive Income Ideas For 2023
        • 3 Ways To Make $50,000 Per Year Without Working With Passive Income
        • How To Become A Real Estate Investor With Just $500
        • 15 Best Online Business Ideas
        • Residual Income: 7 Super Smart Ways to Build It
        • The Most Common Multiple Income Streams
        • How To Become A Real Estate Mogul With Only $10,000
      • Reviews

        • Fundrise Review
        • RealtyMogul Review
        • FarmTogether Review
        • AcreTrader Review
        • Swagbucks Review
        • Survey Junkie Review
        • TopCashback Review
        • DoorDash Review
  • Personal Finance
      • Banking

        • 10 Best High Yield Savings Accounts Of June 2023
        • 10 Best Money Market Accounts Of June 2023
        • 10 Best Free Checking Accounts In June 2023
        • Best Bank CD Rates Of June 2023
        • 10 Best Business Checking Accounts In June 2023
        • Best Online Banks Of June 2023
        • Best Credit Unions Nationwide Of June 2023
        • Best College Student Checking Accounts Of June 2023
      • Insurance

        • Best Life Insurance Companies
        • Renters Insurance
        • Car Insurance
        • Pet Insurance
        • Umbrella Insurance
        • Disability Insurance
        • Tuition Insurance
        • Travel Insurance
      • Credit Tools

        • Best Budgeting Apps
        • Cash Advance Apps
        • How To Get A Free Credit Score Report
        • Best Credit Monitoring Services For 2023
        • Debt Settlement: Inside The Secret World
        • Credit Repair Explained: Should You Pay For Help?
        • Best Personal Loan Companies And Lenders
        • Online Loan Companies To Borrow From Home
      • Tax

        • Best Tax Software
        • Free Tax Software
        • IRS Tax Refund Calendar
        • Common IRS Questions and Errors
        • Federal Tax Brackets
        • Capital Gains Tax Brackets
        • 401k Contribution Limits
        • IRA Contribution Limits
        • HSA Contribution Limits
  • Awards
  • Search
Home / Investing / Tools / What Type of Investment Account Do I Open?

What Type of Investment Account Do I Open?

Updated: June 5, 2023 By Robert Farrington

11Shares
  • Facebook
  • Twitter
  • LinkedIn
  • Pinterest
  • Email
  • Print

At The College Investor, we want to help you navigate your finances. To do this, many or all of the products featured here may be from our partners. This doesn’t influence our evaluations or reviews. Our opinions are our own. Any investing information provided on this page is for educational purposes only. The College Investor does not offer investment advisor or brokerage services, nor does it recommend buying or selling particular stocks, securities, or other investments. Learn more here.Advertiser Disclosure

There are thousands of financial products and services out there, and we believe in helping you understand which is best for you, how it works, and will it actually help you achieve your financial goals. We're proud of our content and guidance, and the information we provide is objective, independent, and free.

But we do have to make money to pay our team and keep this website running! Our partners compensate us. TheCollegeInvestor.com has an advertising relationship with some or all of the offers included on this page, which may impact how, where, and in what order products and services may appear. The College Investor does not include all companies or offers available in the marketplace. And our partners can never pay us to guarantee favorable reviews (or even pay for a review of their product to begin with).

For more information and a complete list of our advertising partners, please check out our full Advertising Disclosure. TheCollegeInvestor.com strives to keep its information accurate and up to date. The information in our reviews could be different from what you find when visiting a financial institution, service provider or a specific product's website. All products and services are presented without warranty.

Types Of Investment Accounts

If you are just considering getting started investing, you may be overwhelmed by the first choice on the investment account application: what type of investment account do you want? The truth is that there are a lot of different accounts for different purposes, so I will try to shed a little light on the more common ones that are offered at most discount brokerages.

Remember, an investment account is like a vehicle, while your actual investments are the passengers.  Depending on the vehicle you own, it can only hold certain numbers and types of passengers.  Plus, certain other rules will apply.  That is how accounts work.  Inside the account, you hold your stocks, bonds, mutual funds, etc.  Some accounts have limits on how much you can put in, and there are rules about what types of investments you can hold in certain types of accounts.

First, there are two main distinctions in accounts: brokerage and retirement. There are also some specialty accounts. Brokerage accounts can be accessed at any time to deposit and withdraw funds. Retirement accounts have restrictions on how much can be invested annually, and can usually only be withdrawn upon in retirement. 

Both types also have their benefits. Brokerage accounts can invest in any investment product, and can also take on leverage and short positions. Retirement accounts are somewhat limited in what they can invest in, but they usually offer some type of tax advantage.

Table of Contents
Brokerage Investment Accounts
Retirement Investing Accounts
Education Savings Accounts
Health Savings Accounts
Which Type of Investment Account Should I Open?

Brokerage Investment Accounts

Cash - A cash brokerage account is the most basic form of investment account.  It's also known as a standard brokerage account.  This account type is funded by your cash, and you can only invest with the cash in the account.  This account is limited in what you can do because you can only use your cash.  For example, you can't engage in certain options trading, and you can short sell either.  If you're interested in that type of trading, you should look for a margin account. You should note that everything you do in a cash account is taxable, so make sure you pick your investments wisely.

Look at our guide that compares the best brokerage accounts here.

Margin - A margin account is very similar to a cash account except you have the ability to trade on margin.  This means that you're able to borrow from the brokerage when you place a trade.  It still requires a certain amount of capital, and you can usually borrow up to 50% of what you have.  A margin account gives you the ability to place every trade possible - including options trades and short selling.  This is all due to the fact that you're able to borrow from the broker to conduct the trade.  Just like a cash account, a margin account is fully taxable.

Retirement Investing Accounts

When it comes to saving for retirement, there are a lot of different investment vehicles.  IRAs are the main type that you can go an open.  You may be familiar with a 401k or 403b, but those are employer sponsored plans and individuals don't open those accounts.

Traditional IRA - A Traditional IRA (individual retirement account) is a savings vehicle that allows you to save and invest for retirement up to the IRA contribution limits.  The benefit of using a Traditional IRA is that, in many cases, the amount you contribute is tax deductible.  Once you put money inside the account, everything you do or trade is tax deferred.  You only pay taxes once you withdraw the money in retirement, but you will do so at ordinary income tax rates.

Check out our picks for the best places to open an IRA account.

Roth IRA - A Roth IRA is similar to a Traditional IRA, except that you invest using after-tax money.  Inside the account, both the Roth and Traditional IRA act the same.  However, with the Roth IRA, when you withdraw your money in retirement, you don't pay any taxes on it.

For these accounts, the gamble is this: do you think you're going to be in a higher tax bracket now or later.  If you are paying higher taxes now, and think you'll pay less in retirement, a Traditional IRA makes sense because you get the tax breaks today.  However, if you are in a low tax bracket now and plan to be in a higher tax bracket in retirement, a Roth IRA is the better choice.

SEP IRA - A SEP IRA is designed for the self-employed. In fact, it stands for Self-Employed Pension. Anyone who is self-employed can start a SEP IRA, and they're really quick and easy to open. In fact, if you're a freelancer or side hustler, this is a great account to open. The limits on these accounts are very high, and you can contribute upward of 25% of your income to this account. 

2023 IRA Contribution Limits

401k - A 401k is a workplace sponsored retirement investing account. It can be sponsored by your employer, or by yourself if you're self-employed (hence the Solo 401k). The great thing about a 401k is that the amount you can contribute is significantly higher than what you can contribute in an IRA. The 401k has employer and employee contributions - and some employers even offer matching contributions! 

2023 401k Contribution Limits

403b - A 403b is similar to a 401k in that it's a workplace sponsored retirement plan, but this is for non-profit or tax exempt organizations. The contribution limits for a 403b are the same as a 401k, and many employers also offer matching contributions here as well. 

403b Contribution LImits 2023

Education Savings Accounts

529 Plan - A 529 plan is an education savings account that used to be primarily used for college, but now can be used for K-12 expenses, student loans, and more qualifying expenses. This account has an account owner (usually a parent or grandparent), and an account beneficiary (usually a child). It's a great tool that allows money to grow inside of it tax-deferred, and when the money is used for qualifying expenses, it's tax free. Plus, most states provide a tax deduction for contributions as well. 

Read our full guide on where to open a 529 plan in your state.

2023 529 Plan Contribution Limits

Coverdell Education Savings Account - A Coverdell Education Savings Account, previously known as an Education IRA, is another account that allows families to save for K-12 expenses and college. These accounts are less popular than a 529 plan, specifically because of the low contribution limits, but they do have some advantages, especially when it comes to qualifying expenses.

Health Savings Accounts

Health Savings Account - A Health Savings Account, or HSA, is a popular way to save for health expenses, but also retirement. This account comes with a triple tax benefit that has a lot of people leveraging this account as an IRA rather than for healthcare. 

You also can open an HSA for yourself outside your employer, as long as you qualify. You can also rollover old HSAs into a new account. See our list of the best HSA providers here.

2023 HSA Contribution Limits

Which Type of Investment Account Should I Open?

If you are just getting started investing, and don't plan on accessing your investments until retirement, you should consider a retirement account. These accounts have lots of tax benefits and are designed for long term investment strategies.

If you are looking to "play" or speculate in the stock market, I would recommend a margin account. It is very similar to a cash account, but as you want to take on more advanced investment strategies, this account will provide the flexibility you will inevitability want.

And if you're looking to save and invest for the future, always take advantage of "free money". Meaning, if you get a 401k match, HSA match, or other free money - start investing there!

What type of investment account do you have?  Are you planning on opening other investment accounts?

Robert Farrington
Robert Farrington

Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.

He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.

He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.

Editor: Colin Graves Reviewed by: Chris Muller

Types Of Investment Accounts
Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.
Subscribe
Connect with
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
Notify of

I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree

11 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments

Primary Sidebar

Investing Resources

Featured Broker Reviews

>  Fidelity (recommended)
>  Robinhood (recommended)
>  Webull
>  M1 Finance
>  Schwab
>  Vanguard
>  Public

Featured Robo-Advisors

>  Wealthfront (recommended)
>  Betterment
>  WealthSimple
>  Vanguard Digital Advisor

Annual Contribution Limits

  • 401k Contribution And Income Limits
  • IRA Contribution and Income Limits
  • HSA Contribution and Income Limits
  • 529 Plan Contribution Limits

More On Investing

  • Best Online Stock Brokers In 2023
  • Best Brokerage and Investing Bonus Offers In June 2023
  • Best HSA (Health Savings Account) Providers Of 2023
  • 5 Best Investing Apps Of 2023
  • How To Buy Stocks Online For Free
  • The Best Robo-Advisors Of 2023
  • The Best Self-Directed IRA Providers Of 2023
  • The Best IRA Accounts (Traditional and Roth) Of 2023
  • Comparing The Most Popular Solo 401k Options
  • Best Automatic Investment Apps Of 2023

Footer

Who We Are

The College Investor is an independent, advertising-supported financial media publisher, focusing on news, product reviews, and comparisons.

Connect

  • Contact Us
  • Advertise
  • Press & Media

About

  • About
  • Our Team
  • Podcast
  • Editorial Guidelines
  • How We Make Money
  • Archives

Social

Copyright © 2023 · The College Investor · Privacy Policy ·Terms of Service · DO NOT Sell My Personal Information

wpDiscuz