Tax Advantaged Accounts

Some people invest in taxable accounts whereas others take advantage of tax advantaged accounts such as IRA or 401k. Before you start investing, buying and selling stocks or bonds, you need to open an investment account. You need to decide if you are going to trade in tax advantaged accounts or taxable accounts.

About tax advantaged accounts

Tax-advantaged accounts are among the best long term investments, considering that they grow tax-free then whole time. But of course they can't be had by everyone, so how do you know when it's right for you? Basically, if one or more of your long-term goals is to provide for your retirement, or anyone's educational expenses, then the IRS will allow you to take advantage of the greatest investment tools, a tax-deferred account. (529, IRA, etc…) If you are eligible, we highly recommend it. However, they all have their own requirements that you must research first, which are simply too numerous to list on this page. They vary from account type to account type, but you must weigh them all before you decide!

For example:

• An IRA will have large penalties for withdrawal before age 59 1/2.

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• A 529 is a better deal if purchased from certain states.

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• If your time horizon for either investment is too short, then the taxes that you will incur at the end might outweigh the advantages.

These are just a few of the things you must consider. Your personal situation may include others, but they are impossible to predict here as they could be different for everyone.

For further help on this step, please refer back to the page entitled "Investing Tax Free" in the earlier section, available on the menu at the top left. For now, write down on your paper any tax-advantaged account types you are eligible for, considering your existing goals. We'll deal with them more in depth on step #7.