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Investing strategies

Choosing investment accounts

Deciding on an account type is easier than it might sound. It just comes down to the reason you're investing.
3 minute read

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.
 

Retirement

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.

Find out more about IRAs

Find out more about small-business plans

Learn about saving for retirement
 

College

Start by considering a 529 savings plan or an UGMA/UTMA account. There are significant differences between the 2 account types.

Find out more about 529 college savings plans

Find out more about UGMA/UTMA accounts

Learn about saving for college

IRA

A type of retirement savings account. Two popular types of IRAs are the traditional IRA and Roth IRA. You may contribute to these IRAs only if you (or your spouse) have earned income. The main advantage of a traditional IRA is the opportunity to contribute pre-tax dollars. Roth IRAs are popular because, while contributions consist of after-tax dollars, the earnings on the account are tax-free, and you're not required to distribute the assets during your lifetime. For both IRAs, distributions of untaxed assets (contributions and earnings for a traditional IRA; earnings for a Roth IRA) before age 59½ are generally subject to a 10% penalty tax.

529 savings plan

A state-sponsored investment plan that lets families save for future education costs and withdraw investment earnings federally tax-free when used to pay qualified expenses including qualified higher education expenses, tuition, room and board, and supplies. Families can also use 529 assets for K–12 tuition of up to $10,000 per student per year for enrollment or attendance at a public, private, or religious school.

UGMA/UTMA

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.

Earnings

Revenue for a specified period of time, after related costs and expenses have been deducted.

Trust

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.

Find out more about general investing accounts

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.

What's next?

Once you've got the basics down, it's time to choose your investments.

See how to find the right investments for you

Saving for retirement or college?

See guidance that can help you make a plan, solidify your strategy, and choose your investments.

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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.