Choosing investment accounts
Points to know
- You need an account to hold your investments.
- Some accounts are meant for specific goals.
- General accounts can be used for anything.
Accounts for common goals
There are specific types of accounts for certain goals, some of which offer tax benefits. If you're saving for college or retirement, start by looking at these account types.
If you're self-employed or own a business, there are specific types of retirement accounts just for you. For everyone else, a 401(k) or 403(b) plan (through your employer) or IRA (on your own) may be a good choice.
Start by considering a 529 savings plan or an UGMA/UTMA account. There are significant differences between the 2 account types. If you're sure the money will be used for college, a 529 plan could be the right choice.
IRA (individual retirement account)
A type of account created by the IRS that offers tax benefits when you use it to save for retirement.
529 savings plan
A type of investment account that offers federal and state tax benefits to people saving for higher education. These plans are sponsored by particular states but are usually open to anyone. The money in a 529 savings plan can be used for tuition and other qualified expenses at thousands of colleges, universities, graduate schools, and trade and technical schools in the United States and abroad.
A Uniform Gifts to Minors Act or Uniform Transfers to Minors Act account owned by a minor that's off limits until he or she reaches adulthood. After that, the money can be used for any purpose.
The investment returns you accumulate on the savings in your account.
A legal arrangement through which property, such as investments or real estate, is held by a trustee on behalf of a beneficiary. Trusts are often used as part of a plan to minimize or eliminate estate taxes.
Accounts for everyone
If you prefer a little more flexibility, you can open a general investing account. With this type of account, you can buy and sell whenever you want, but you pay taxes on your investment earnings.
If you have an existing trust that's designed to control what will be passed down to your heirs and minimize estate taxes, you can open an account in the name of the trust. We recommend you talk to your attorney or tax advisor about whether this would be appropriate in your situation.
Once you've got the basics down, it's time to choose your investments.
Start investing now
Start investing now
When taking withdrawals from an IRA before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.
For more information about any 529 college savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. If you are not a taxpayer of the state offering the plan, consider before investing whether your or the designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Vanguard Marketing Corporation serves as distributor for some 529 plans.
All investing is subject to risk, including the possible loss of the money you invest.