Updated June 22, 2022

Best Investment Accounts

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Looking to open an investment account? In this list, review the best investment accounts to choose from and how to pick the right one for you.

People say that you should start investing as soon as possible.

But getting started can be a daunting task.

While your investments are up to you, this guide can help you choose the best investment account to get the ball rolling. Plus, learn about which account type is best suited for your goals.

Best Investment Accounts

The options featured below are some of the best-known in investing today.

Take a look at how they differ, and you'll be well on your way to picking the investment account that's right for you.

Annual FeeMinimum Deposit
Betterment
  • 0.25% for accounts under $100,000
  • 0.40% for accounts $100,000+
$0See Offers
RobinhoodNone$0See Offers
Public.comNone$0See Offers
M1 FinanceNone$100See Offers
WebullNone$0See Offers
Acorns
  • $3/mo for Acorns Personal (includes personal taxable account, IRA, and checking account)
  • $5/mo for Acorns Family (includes everything in Personal plus investment accounts for kids)
$0See Offers

1. Wealthfront

  • Minimal opening deposit + fees
  • Advanced goal tracking
  • Tax loss harvesting
  • No human advisors
  • No fractional shares

New investors may be interested in Wealthfront, an automated investing platform with low fees. It costs just $500 to start, and they'll manage up to $10,000 for you free of charge.

They'll make trades for you (if you want) and rebalance your portfolio when necessary.

Wealthfront can also help you choose an investing path suited to your interests. They offer curated portfolios like their "Socially Responsible" portfolio, which addresses issues like human rights, climate change, diversity and equity.

Other portfolios you can choose from include Technology ETFs, Cannabis ETFs, and Healthcare ETFs. You can also get help transferring portfolios from other brokerages and save on taxes doing it.

Of course, you don't have to rely on their curated investment picks. You're free to add and remove investments on your own as well.

If you're interested in investing in crypto but not necessarily buying cryptocurrency itself, you can also take advantage of access to Grayscale Bitcoin and Ethereum trusts, which can make up to 10% of your portfolio.

Key Features:

  • Automated investing accounts
  • Curated portfolios
  • Up to $10k managed free
  • Cash account with ATM withdrawals
  • Traditional IRA, Roth IRA, SEP IRA, 401(k), 529 College Savings Accounts
  • Individual Accounts, Joint Accounts, Trust Accounts
  • Mobile app
  • SIPC Insured

Fees & Minimums[1]

  • $500 minimum
  • Free trading
  • 0.25% annual advisory fee

2. Betterment

  • No minimum investment
  • Many customized portfolios
  • Automatically invest extra funds
  • Limited investment options
  • High fees for large investments

Betterment is a popular robo-advisor that uses automated software to manage your portfolio. There's no minimum balance, meaning you can get started investing with just $10.

They do charge a 0.25% annual fee, similar to other automated investing platforms like Wealthfront. You can let them manage your account entirely, or you can DIY and choose your own investments.

With Betterment, you invest in a variety of ETFs (exchange-traded funds), which give your portfolio more diversity than investing in individual stocks, meaning less volatility. You can customize your account by setting your risk tolerance, savings goals, and more.

Like Wealthfront, they also have a "Socially Responsible" investment portfolio. They'll do what they can to help you save on taxes, and even let you track your finances in one place when you connect outside accounts.

They even provide a fee-free checking account with ATM withdrawals and mobile deposits through their app.

Key Features:

  • Robo-advisor
  • Free checking account with ATM withdrawals
  • Traditional IRA, Roth IRA, Roth Conversion IRA, SEP IRA, 401(k), High-Yield Cash Accounts
  • Trusts
  • Mobile app
  • Low-cost trading
  • SIPC Insured

Fees & Minimums[2]

  • 0.25% annual fee
  • No account minimum

If you sign up for a premium plan, which costs 0.40% per year and has a minimum balance of $100,000, you can receive consultations from a Certified Financial Planner, who can provide expert advice on how to meet your investing goals.

3. Robinhood

  • Commission-free trades
  • No minimum
  • Extended trading hours
  • No IRAs
  • Limited research
  • No mutual funds or bonds

Robinhood is an investing app that aims to democratize stock trading by making it quick and easy to get started.

As a commission-free exchange with fractional shares, Robinhood has removed many of the financial barriers to get into stock trading. Their intuitive, user-friendly design makes it easy to get started, too.

Investors in the United States can trade stocks listed on the NASDAQ and New York Stock Exchange (NYSE), as well as a range of popular stocks from international exchanges. Robinhood also offers a limited range of cryptocurrencies, including the most popular like Bitcoin and Ethereum.

Key Features:

  • Fractional shares
  • Easy to use
  • Real-time market data
  • Extended trading hours
  • Free cash card account
  • SIPC protected
  • Mobile app
  • Limited crypto trading
  • 24/7 customer support online and by phone

Fees & Minimums:[3]

  • 100% commission-free
  • No minimums

Robinhood is a big name in retail investing, but it's not the only option out there. Review this guide to the best Robinhood alternatives to see if other platforms are better suited for you.

4. J.P. Morgan Self-Directed Investing

  • No minimum
  • Commission-free trading
  • Can offer generous bonuses
  • No forex, crypto, futures or fractional shares
  • No retirement accounts for self-employed

J.P. Morgan Self-Directed Investing accounts offer unlimited commission-free trading online or through their mobile app.

You can choose from a wide variety of investment options, including stocks, ETFs, mutual funds, and options. Their portfolio builder tool also lets you customize your investment strategy.

When you sign up, you'll get access to J.P. Morgan Research, which provides market analysis and news.

They offer a range of investment and savings account types, including a general investment account and traditional and Roth IRAs.

If you want to level up your investing, you can work directly with a J.P. Morgan Advisor, or you can take a more hands-off approach by using their automated robo-advisor to manage your trades.

Key Features:

  • Unlimited trades
  • Trade stocks, ETFs, mutual funds, and options
  • Market analysis and news
  • Robo-advisor
  • General Investment, Traditional IRA, Roth IRA accounts
  • J.P. Morgan Advisor

Fees & Minimums

  • $0 account minimum
  • Commission-free trading

5. TD Ameritrade

  • Offers advanced tools + research
  • Commission-free trading
  • No minimum deposit
  • Some fees for mutual funds
  • May be too advanced for beginners

A familiar name among online brokerages, TD Ameritrade offers commission-free trading on stocks, ETFs, and options.

If you're looking for an extensive range of analytical tools, this platform may be for you.

They offer a range of standard investing accounts (individual and joint) and retirement accounts, including:

  • Traditional IRAs
  • Roth IRAs
  • Rollover IRAs
  • 529 Plans
  • Tax-free Coverdell accounts
  • UGMA/UTMA accounts for minors and education
  • Trusts
  • Pension plans

Users also get access to heat maps and earnings calendars, as well as the ability to do backtesting, a research technique involving testing investment strategies against historical market data.

Best of all, there are no account minimums required to access the top-tier features.

Key Features:

  • Stocks, ETFs, options, and futures
  • Wide variety of investment accounts
  • Trusts and pensions
  • Analytical tools
  • Mobile app

Fees & Minimums[4]

  • No account minimums
  • Commission-free trading

6. Public

  • Commission-free trading
  • Offers fractional shares
  • No deposit or withdrawal fees
  • Limited investment options
  • No access to financial advisors

Public is an investing social network. Their goal is to make investing accessible by promoting financial literacy and education, and offering fractional shares of expensive stocks.

Public focuses on stock trading and ETFs, and you can get started with as little as $1.00. Public is free to download and commission-free as well.

As a trading social network, Public stands out for giving you the ability to see what others are trading. This can help you make more informed decisions on what to invest in.

Users can also follow curated themes. These groups of stocks share unifying features. Examples include The Crypto Revolution, For the Win! (gaming and eSports), Women in Charge, and Growing Diversity.

Key Features:

  • Over 9,000 stocks and ETFs
  • Curated theme-based portfolios
  • Collaborative community
  • Fractional shares
  • Fund account with debit card
  • Mobile app
  • SIPC insured

Fees & Minimums[5]

  • Commission-free trading
  • No deposit or withdrawal fees
  • No minimum to open account

7. M1 Finance

  • Choose your own investments
  • No account fees
  • Offers individual stocks
  • No research tools
  • No human advisors
  • Can only trade once a day

M1 Finance offers a variety of financial services to investors, and it's free to use.

Their investing accounts offer fractional shares and automatic rebalancing, with automation capabilities so you don't have to worry about making trades manually if you don't want to.

And if you want to invest like an expert, you can choose from one of their curated "pies," each following its own unique investing strategy.

You can take out a line of credit against your investments, avoiding selling and taxes if you're faced with a big expense.

They offer an integrated checking account, and are releasing a credit card that gives higher rewards when you spend money with companies you're invested in.

Users are able to set up smart transfers that will complete automatically if set criteria are met, and send physical checks without having to write them by hand.

Key Features:

  • Individual taxable accounts, joint accounts, traditional, Roth, and SEP IRAs, trust accounts
  • Automated trading
  • Curated portfolios
  • Credit line
  • Rewards card
  • Checking
  • Mobile app

Fees & Minimums[6]

  • Commission-Free
  • $100 minimum[7]
  • No management fees

8. E*TRADE

  • Impressive resources and tools
  • Beginner-friendly
  • Industry leader
  • Trade fees

E*Trade is a popular online brokerage that caters to beginners and low-frequency traders. They have a wide range of investment accounts available compared to many of their competitors.

Their brokerage accounts include a normal trading and investing account, Coverdell ESAs for education, and custodial accounts for minors.

E*Trade offers a wide selection of IRAs, including Traditional and Roth IRAs, Rollover IRAs from old 401(k)s, Beneficiary IRAs for inherited retirement assets, E*Trade Complete IRAs for investors over 59 1/2, and IRAs for minors.

They also offer 401(k)s, SIMPLE and SEP IRAs, as well as profit-sharing and investment accounts for small businesses.

You can even apply for a mortgage through E*Trade.

Key Features:

  • Extensive brokerage and retirement accounts
  • Banking services, including checking and savings
  • Trade stocks, options, futures, mutual funds, ETFs, bonds and CDs
  • Prebuilt or managed portfolios
  • Investing guidance
  • Mobile app

Fees & Minimums[8]

  • No minimum to open an E*TRADE brokerage account; $500 minimum initial investment in robo-advisor platform Core Portfolios
  • Commission-free trading

9. Vanguard

  • Large selection of investments
  • Broker assistance for no additional cost
  • Service fee can be waived
  • Some investments require high minimum
  • Too costly for day traders

Vanguard is a platform best for active investors interested in building and managing their own portfolios.

They offer a range of options for investors or those planning for retirement, including Traditional and Roth IRAs, individual and joint accounts, 529 plans for education, as well as small business retirement plans.

Their range of investment options is extensive as well, including mutual funds, ETFs, stocks, CDs and bonds, and money market funds. Vanguard was one of the earliest companies to offer low-cost investing and has lower fees than many of their competitors.

Investing with Vanguard does require a little more expertise than some of these other options, as you'll be picking your own investments, many of which have minimum requirements of at least $1,000.

The good news is they also offer help, either in the form of their Vanguard Personal Advisor Services, or with the Vanguard Digital Advisor, an online financial planner that helps you choose an investment strategy.

Key Features:

  • Trade mutual funds, ETFs, stocks, CDs and bonds, money market funds, ESG funds
  • Traditional and Roth IRAs, individual and joint accounts, 529 plans, small business retirement plans, SEPs, 401(k)s, SIMPLE IRAs, 403(b)s
  • Advisor services
  • Robo-advisor
  • Mobile app

Fees & Minimums[9]

  • Low-fee trading
  • $20 annual service fee (can be waived easily)
  • Some investments require a $1,000 minimum

10. Webull

  • No trade fees
  • Advanced research tools
  • Extended trading hours
  • Offers fractional shares
  • Not beginner-friendly
  • No mutual funds

Webull is another popular investing platform, especially with millennials. They offer a wide range of investment options, including stocks, ETFs, options, and cryptocurrencies, and trading is all commission-free. They have no deposit minimums either.

They have a range of investment accounts, including Traditional and Roth IRAs and Individual Brokerage Accounts. They support full extended trading hours, and you can trade via app or PC.

One feature that sets Webull apart is its extensive research and analytical tools, which many retail investor-oriented platforms aren't known for.

For those looking to learn, they offer a free paper trading account that allows you to play around with $1,000,000 of fake money. You get 3 trades per 5-day period, a restriction lifted for accounts over $25,000. Short selling and options trading are also available.

Key Features:

  • Free extended trading accounts
  • Free margin account with $2,000 minimum
  • Trading Simulator
  • Advanced research tools and charting
  • Stocks and crypto
  • Mobile app
  • Fractional shares

Fees & Minimums[10]

  • Commission-free trades
  • No account minimums

11. Fidelity

  • Impressive research reports
  • Beginner-friendly tools
  • No minimum or annual fee
  • No community forums
  • Must meet trade threshold for full access

Fidelity is another well-known stock exchange that has something to offer for beginners and experts alike.

You can invest in a wide range of securities, including stocks, mutual funds, ETFs, bonds, and CDs.

They also offer IRA accounts, 529 college savings accounts, or cash management accounts. Normal trades are commission-free.

Fidelity offers a quick look at your "retirement score" to see if you're on track to meet your goals, access to an estate planner that will help you find an attorney, and tools to help choose a trading strategy that is right for you.

Key Features:

  • Trade stocks, mutual funds, ETFs, bonds, and CDs
  • Financial planning assistance
  • IRA accounts, 529 college savings accounts, or cash management accounts
  • Mobile app
  • In-depth research tools
  • Article and video archive

Fees & Minimums[11]

  • Commission-free trading
  • $0 minimum deposit
  • No annual fee

12. Acorns

  • No minimum
  • Generous cash-back program
  • Good for beginners
  • Fees are high for small balances
  • No tax benefits
  • Limited investment options

Acorns is an investing app that aims to make it easy for average people to level up their finances. You can fund your account by rounding up the spare change on your purchases and putting it away to save or invest.

Setup on investment accounts for the whole family is quick and easy, and they also offer retirement and checking accounts that users can add to incrementally.

Users can take advantage of portfolios designed by experts that automatically adjust to keep their investments on track.

Key Features:

  • Round up spare change
  • Investment, Retirement, and Checking accounts
  • Roth, Traditional, SEP IRAs
  • UTMA / UGMA accounts for minors
  • ESG portfolios
  • Pre-built portfolios of stocks, ETFs, and bonds
  • Investor risk assessment
  • Investing for kids
  • Mobile app

Fees & Minimums[12]

  • Accounts incur a monthly fee of $3 or $5
  • Trading fee factored into the monthly service fee
  • No withdrawal fees

Best Investment Account Types

It's not just about choosing the right company. Choosing the right kind of investment account is important, too. Consider when you want to use the money and what you intend to use it for.

Some non-qualifying account types are subject to annual taxes. These are the easiest to set up and have fewer limitations. Many of these, but not all, are designed for retirement savings.

Other, qualifying investments may be tax-free or tax-deferred, but have limitations on when you can access the money, who can use them, and how much you can contribute.

Taxable Investment Accounts

Individual or Joint Brokerage Account

Contribution LimitNone
Rules for WithdrawalVaries by broker. Capital gains or taxable distributions will incur taxes.
Withdrawal RequirementsNo

One of the most common investment accounts, a brokerage account lets you buy things like stocks and bonds, mutual funds, options and more by going through a licensed broker.

These accounts have no contribution limits or withdrawal requirements, but you will have to pay capital gains and other taxes. The rate you're taxed at is dependent on your annual income and how long you held the investment.

Cash accounts, the best choice for beginners, allow you to deposit money and invest it directly. Margin trading accounts, which let you invest money borrowed from the broker, offer potentially higher payouts.

But they also create the risk of losing money you don't have. For that reason, they should only be used by experienced investors.

Though there are few requirements for opening a brokerage account in the U.S., you do have to be a legal adult and possess a Social Security number or Tax ID number.

For parents interested in helping their teens get a head start in investing and money management, custodial brokerage accounts are an option, often with added features like banking and debit cards built-in.

If you are looking to open an account for more than one person, such as a spouse or significant other, joint accounts are also available.

Money Market Fund

Contribution LimitNone
Rules for WithdrawalVaries by broker. Capital gains or taxable distributions will incur taxes.
Withdrawal RequirementsNo

Cash and cash equivalents like Certificates of Deposit (CDs) and U.S. Treasury bonds are the sort of investments you'll find in a Money Market Fund, a specific type of mutual fund. They are relatively low-risk investments, and subject to regulation by the SEC.

These short-term investments are typically highly liquid and have high credit quality. Rather than investing in these cash equivalent securities directly, each investor receives redeemable shares. There are no rules about when you can buy or sell shares, and typically the initial investments are low.

Money Market Funds come in both taxed and tax-free varieties. The tax-free funds typically pay less, but the lower payouts can be made up for in volume by larger investors.

Other securities offered in Money Market Funds may include commercial paper, repurchase agreements, and bankers acceptances.

Retirement Plans (Traditional and Roth)

401(k)

Contribution LimitIndividual contributions are limited to $20,500 + $6,500 per year, with a combined total limit of $61,000, including employer contributions.[13]
Accounts are eligible for catch-up contributions.
Rules for Withdrawal10% additional tax incurred on funds withdrawn before age 59 1/2
Withdrawal RequirementsWill incur penalties if first withdrawal is not made by age 72

A 401(k) is one of the more common and better-known retirement investment accounts. They allow your company to set aside a portion of your income for retirement savings each paycheck, taking some of the stress and responsibility of saving out of your hands.

Additionally, many employers will match your contributions to a 401(k), adding a significant boost to your retirement savings.

Due to the added value, you should always try to contribute the maximum amount when possible. A common practice is to match 50% of the first 6% you put in, for a 9% total contribution.

However much you contribute is sent to a brokerage account, where it's invested based on criteria you choose when setting up the account, such as risk tolerance, retirement date, and financial goals.

As you approach retirement, your portfolio will shift away from higher volatility investments such as stocks, and toward safer investments like debt instruments. Since stocks fluctuate in value much more dramatically, their price is more likely to have an impact when you need to withdraw funds.

In many cases, if you don't choose a specific investment plan, you'll receive a Qualified Default Investment Alternative (QDIA), which allows your employer to allocate your retirement funds without liability if the investment loses money.

A Traditional 401(k) will offer a tax deduction on current contributions, but will be taxed after you retire.

A Roth 401(k) is funded with post-tax dollars, but tax-free to withdraw from.

While there is a penalty on money withdrawn before 59 1/2 from a Traditional 401(k) except for qualified reasons, it is possible to take a 401(k) plan loan for early access, as long as you pay it back.

Note: Annual Contribution Limits are listed as of 2022. However, they regularly change.

403(b) and 457

Contribution LimitIndividual contributions are limited to $20,500 + $6,500 per year, with a combined total limit of $61,000, including employer contributions.[13]
Accounts are eligible for catch-up contributions.
Rules for Withdrawal10% additional tax incurred on funds withdrawn before age 59 1/2
Withdrawal RequirementsWill incur penalties if first withdrawal is not made by age 72

If you work for a public school, a nonprofit or tax-exempt business, you'll receive a 403(b) plan instead of a 401(k). If you work for the government, the plan is called a 457.

It's possible for employers to provide 401(k) or 403(b) plans in addition to a 457, and if you have access to both, you're able to fund both as well.

When employees with 457 plans get within three years of retirement age, some employers will allow double contributions. There are no penalties for withdrawing money early from your 457 plan.

Both of these plans function like traditional 401(k)s in terms of taxation. You'll receive a tax deduction on your contributions, then pay taxes later on your withdrawals.

Individual Retirement Account (IRA)

Contribution LimitIndividual contributions are limited to $6,000 + $1,000 per year.[13]
Accounts are eligible for catch-up contributions.
Rules for Withdrawal10% additional tax incurred on funds withdrawn before age 59 1/2
Withdrawal RequirementsWill incur penalties if first withdrawal is not made by age 72

An Individual Retirement Account (IRA) works similarly to a 401(k), but it doesn't involve your employer. Instead, you can open an IRA on your own through a broker or a financial advisor.

The advantage of an IRA is that you can invest your pre-tax income. This way, you can benefit from investing a larger pool of money, which can increase your potential earnings before paying taxes later on your withdrawals, thanks to the work of compound interest.

There are strict requirements that determine whether IRA contributions are tax-deductible, set by the IRS. They include income, filing status, and availability of other plans.

What you can invest in with an IRA depends on your custodian—the broker or institution through which you established it. Possible IRA investments include a wide range of options, including stocks, bonds, mutual funds, annuities, exchange-traded funds (ETFs), and real estate.

There are higher contribution limits for those aged 50 and above.

Roth IRA

Contribution LimitIndividual contributions are limited to $6,000 + $1,000 per year.
Accounts are eligible for catch-up contributions.
Rules for Withdrawal10% additional tax incurred on funds withdrawn before age 59 1/2
Withdrawal RequirementsNo

The primary difference between a traditional IRA and a Roth IRA is that with Roth IRAs, your contributions are made with post-tax income, meaning that you won't be taxed again at time of withdrawal.

This can be beneficial if your investments put you in a higher tax bracket at time of retirement than when you made them, as you won't be subject to capital gains taxes, or taxes on dividends or other distributions.

Conversely, with a traditional IRA, if your tax bracket is the same when you withdraw, the tax benefits are effectively neutralized, and if you're in a higher tax bracket than before, it can actually be detrimental.

Roth IRAs are subject to a 5-year holding requirement regardless of age. In other words, once you make a contribution, you can't withdraw it for at least five years, even if you're older than 59 1/2.

If you do choose to withdraw sooner than the 5-year holding requirement but otherwise meet the retirement age, your withdrawals will be subject to normal taxes, but no other penalties.

While you may incur penalties for withdrawing funds before you've reached the minimum age of 59 1/2, there are certain instances where they can be avoided.

You may be able to avoid the penalties if one of the following apply to you (not an exhaustive list):
  • using the money for birth or adoption expenses
  • expenses related to higher education
  • unreimbursed medical expenses
  • health insurance for the unemployed
  • disability
  • and first-time home purchases up to a $10k lifetime limit
These withdrawals will still be subject to taxes.

You'll still get the most out of your Roth IRA by withdrawing after reaching retirement.

SIMPLE IRA

Contribution LimitIndividual contributions are limited to $14,000 + $3,000 per year.[13]
Accounts are eligible for catch-up contributions.
Rules for Withdrawal10% additional tax incurred on funds withdrawn before age 59 1/2
Withdrawal RequirementsWill incur penalties if first withdrawal is not made by age 72

SIMPLE stands for Savings Incentive Match Plan for Employees, and a SIMPLE IRA is a traditional IRA set up by an employer, who is obligated to make contributions, as the name suggests. Contributions are tax-deferred until retirement.

Employer contributions can either consist of 2% of the employee's salary, regardless of how much the employee contributes, or a matching contribution up to 3%.

SIMPLE IRAs were designed for small businesses, with fewer than 100 employees. One reason an employer may opt for a SIMPLE IRA rather than a 401(k) is that they cost less to operate.

Additionally, while rules may vary between 401(k) plans, SIMPLE IRA employees are 100% vested. This means that there are no additional requirements that need to be met in order to withdraw employer contributions, which isn't always the case with other employer-based retirement accounts.

As long as they've earned a minimum of $5,000 in the previous two years and expect to receive that much or more in the current year, employees are eligible for a SIMPLE IRA.

SEP IRA

Contribution LimitIndividual contributions are limited to $20,500 + $6,500 per year, with a combined total limit of $61,000, including employer contributions.[14]
Rules for Withdrawal10% additional tax incurred on funds withdrawn before age 59 1/2
Withdrawal RequirementsWill incur penalties if first withdrawal is not made by age 72

An SEP-IRA or Simplified Employee Pension IRA (not to be confused with a SIMPLE IRA, mentioned above) allows employers to set up and contribute to traditional, tax-deferred IRAs for their employees.

The main difference between a SEP IRA and a SIMPLE IRA or 401(k) is that there are no employee contributions; instead, all of the contributions come from the employer. They are still fully vested as soon as the account is created.

SEP IRAs must be provided for all qualifying employees if they are offered at all. The requirements for enrollment in an SEP-IRA include being 21 years old, having been employed at the company for 3 of the last 5 years or more, and being paid at least $650 in the present year.[15]

Contributions are limited to $61,000 or 25% of an employee's salary, whichever is less.

Businesses may like these SEP IRAs because there are no operation or startup costs. There are no business size requirements, either, and they can be used by those who are self-employed.

Other Tax-Advantaged Plans

Health Savings Account (HSA)

Contribution LimitIndividual contributions are limited to $3,650 + $1,000 per year for individuals, with a limit of $7,300 + $1,000 for families.[16]
Accounts are eligible for catch-up contributions.
Rules for Withdrawal20% additional tax on deductions made for non-qualifying medical expenses.
Withdrawal RequirementsNo

If you live in the United States, you're likely very aware of the costs of health care, especially in case of emergencies. If you're interested in saving for health care in particular, a Health Savings Account is one way to do it.

HSAs can be employer-sponsored, with contributions deducted from your pre-tax pay or via a payroll deduction. There are also services that allow individuals to set up HSAs on their own. In that case, contributions can be deducted from annual taxes. Whatever you don't use stays in your account.

You can invest a portion of your HSA savings to prepare for the future, but it's generally considered a good idea to keep some of it available for health care expenses.

The benefit of an HSA is that you can withdraw the money tax-free at any time for qualifying medical expenses. Once you turn 65, you can use the money for anything without any financial penalties, but until then non-medical withdrawals will incur a penalty of 20%.

You're never required to make withdrawals from an HSA.

There are some requirements to be eligible for an HSA plan. You can't receive Medicare coverage (or any disqualifying health coverage), you can't be claimed as a dependent on anyone else's taxes, and you must be enrolled in a High Deductible Health Insurance Plan or HDHP.

Flexible Spending Account (FSA)

Contribution LimitIndividual contributions are limited to $2,850 per year, with a $5,700 limit for married couples.[17]
Rules for WithdrawalNo additional tax on deductions made for non-qualifying medical expenses.
Employers may implement their own rules.
Withdrawal RequirementsNo

A Flexible Spending Account or Flex Spending Arrangement is a type of employer-generated investment account.

These accounts are funded with pre-tax dollars, and can be used to pay for health, dental, and vision care for your tax dependents and spouse, regardless of their medical insurance. Tax-related savings can be as much as 30% of contributions.

FSAs are limited regarding when the money can be used, typically by the end of the year, with a possible grace period up to March 15th to be granted at employers' discretion. Unused funds will go back to the employer.

529 Savings Account

Contribution Limit$235,000 to $550,000, depending on the state[18]
Rules for Withdrawal10% penalty and additional tax on deductions made for non-qualifying educational expenses.
Withdrawal RequirementsNo

529 savings accounts, not to be confused with 529 prepaid tuition plans, allow you to save for education-related expenses with tax benefits. It's possible to open a 529 plan through an employer if offered, or through several available services if not.

Once funds are deposited in the account, they can be invested in a variety of investment vehicles like mutual funds, stock funds, bond funds, and FDIC-protected money market accounts.

Contributions can be made by yourself, as well as family members and even friends, simply by providing an account code.

States have a variety of plans you can open on your own, typically without requiring that the money be spent on schools in that state.

Some states will even have programs to match contributions made to 529 plans to encourage saving for education.

529 contributions aren't made with pre-tax dollars, but some states will let you deduct a portion of your contributions from your state taxes. Funds must be used for qualifying educational expenses, or they'll be subject to a 10% tax penalty upon withdrawal.

Coverdell Education Savings Account

Contribution LimitIndividual contributions are limited to $2,000 per year, all Coverdell accounts considered.[19]
Rules for Withdrawal10% penalty on deductions made for non-qualifying educational expenses.
Withdrawal RequirementsWith exceptions made for special needs students, funds have to be used by age 30.

Coverdell Education Savings Accounts or Coverdell ESAs are other types of education-oriented investment accounts, in this case, a custodial account or trust.

They work in a similar fashion to 529 savings plans, with tax-free earnings and withdrawals for education-related expenses from elementary school to university.

Unless the beneficiary has special needs, Coverdell ESAs must be established before adulthood, and funds must be used by age 30.

They are limited to cash contributions, and contributions aren't deductible. Contributions can be made by individuals or corporations, up to the annual limit.

If the account ends up holding more money than is needed for qualifying educational expenses, whatever is left is taxed normally upon withdrawal. It is sometimes possible to transfer ESA funds to other members of the recipient's family.

Bottom Line

Choosing where to invest your hard-earned money may seem like a daunting task, but if there was ever something that was better to take care of sooner than later, investing is it.

When you invest, time is on your side—and when you wait, it's working against you. Whether you're saving for school, retirement, a home, or your next vacation, there's a plan and a platform that's right for you.

Take your time, read carefully, and make an informed decision, but don't put it off. The sooner you get started making thoughtful, considered investments, the closer you'll be to reaching your financial goals.

References

  1. ^ Wealthfront. Pricing, Retrieved 1/20/2022
  2. ^ Betterment. Pricing, Retrieved 1/20/2022
  3. ^ Robinhood Financial. Fee Schedule, Retrieved 1/3/2022
  4. ^ TD Ameritrade. Pricing, Retrieved 1/20/2022
  5. ^ Public. Fee Schedule, Retrieved 1/20/2022
  6. ^ M1 Finance. Fees, Retrieved 1/20/2022
  7. ^ M1 Finance. My first deposit, Retrieved 1/20/2022
  8. ^ E*TRADE. Pricing and Rates, Retrieved 1/20/2022
  9. ^ Vanguard. Costs, fees & minimums, Retrieved 1/20/2022
  10. ^ Webull. Financial Fee Schedule, Retrieved 1/20/2022
  11. ^ Fidelity. Straightforward pricing, Retrieved 1/20/2022
  12. ^ Acorns. Pricing, Retrieved 1/20/2022
  13. ^ IRS. COLA Increases for Dollar Limitations on Benefits and Contributions, Retrieved 1/20/2022
  14. ^ IRS. SEP Contribution Limits (including grandfathered SARSEPs), Retrieved 1/20/2022
  15. ^ IRS. SEP Plan FAQs, Retrieved 1/20/2022
  16. ^ HealthCare.gov Health Savings Account (HSA), Retrieved 1/20/2022
  17. ^ HealthCare.gov Using a Flexible Spending Account (FSA), Retrieved 1/20/2022
  18. ^ College Savings Plans Network. Find My State's 529 Plan, Retrieved 1/20/2022
  19. ^ IRS. Topic No. 310 Coverdell Education Savings Accounts, Retrieved 1/20/2022

Jeremy Harshman is a protector of art and writing at CreditDonkey, a personal finance comparison and reviews website. Write to Jeremy Harshman at jeremy.harshman@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

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