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Before you choose what to invest in, you need to decide where those investments will live.
This part is often skipped. People dive into stocks, ETFs, and portfolio strategies without first determining which account type best fits their situation. However, the account type matters just as much, sometimes even more than the investment itself.
There are four primary account types you’ll encounter when investing on your own:
Each has its own tax rules, flexibility, and limitations. Understanding the structure behind them helps you make smarter decisions with your money, not just today, but down the line too.
A Traditional IRA is a retirement account that allows your investments to grow tax-deferred. You may also be able to deduct your contribution in the year it’s made, but that’s not guaranteed.
If you or your spouse are covered by a retirement plan at work, your ability to deduct the contribution depends on your income. Even if it’s non-deductible, the account still allows for tax-deferred growth on earnings until withdrawal.
Withdrawals are taxed as ordinary income. If you access the funds before age 59 1/2, a 10 percent penalty typically applies, unless you meet an exception. Required minimum distributions begin at age 73.
For 2025, the contribution limit is $7,000. If you’re 50 or older, you can contribute up to $8,000. That limit is shared with the Roth IRA.
It’s a familiar account type, but whether it’s tax-deductible or not depends on the details behind the scenes.
The Roth IRA reverses the tax order. You pay taxes on the contribution today, but you may never pay taxes again on the growth.
Once inside the account, investments grow tax-free. And if the account has been open for at least five years and you're age 59 and a half or older, the distributions come out completely tax-free too.
Unlike the Traditional IRA, contributions to a Roth are not deductible. But you can access them at any time, penalty-free. It's the earnings that are subject to additional rules. Early withdrawals of those may be taxed and penalized unless they qualify for certain exceptions like first-time home purchases or education expenses.
There are income limitations. In 2025, the ability to contribute directly starts phasing out at $146,000 for single filers and $230,000 for married couples filing jointly. The contribution limit is the same as the Traditional IRA: $7,000, or $8,000 if you’re 50 or older.
There are no required minimum distributions during your lifetime. That gives it a level of flexibility few other accounts can offer.
An HSA is often misunderstood as just a tool for covering medical expenses, but it has the rare distinction of offering a triple tax benefit.
To be eligible, you must be enrolled in a high-deductible health plan. In 2025, the contribution limits are $4,300 for individuals and $8,550 for families. Those age 55 or older can contribute an extra $1,000.
If the funds are used for non-qualified expenses before age 65, they’re taxed and subject to a 20 percent penalty. After age 65, they’re only taxed as ordinary income with no penalty.
One of the more unique features of an HSA is the ability to delay reimbursement. You can pay for a medical expense out of pocket, let the money in the account grow, and reimburse yourself years later. That allows the funds to continue compounding, even after the expense has occurred.
For those eligible and comfortable with a high-deductible plan, the HSA creates an opportunity to combine healthcare costs with long-term planning.
A taxable brokerage account doesn’t offer any upfront tax deductions or deferred growth. But what it lacks in tax perks, it makes up for in flexibility.
You can invest in stocks, ETFs, mutual funds, and other assets, then use the account however and whenever you want.
Taxes are due when gains are realized. If you hold an investment for more than one year, the gain is typically taxed at long-term capital gains rates, which may be lower than your regular income tax rate. Interest and dividends may also be taxable along the way.
Some brokerages allow borrowing against your portfolio through margin, which can provide liquidity without selling assets, though it comes with added risk.
The simplicity of the taxable account makes it one of the most adaptable tools in a long-term financial plan. It works for short-term goals, long-term investing, or simply building accessible wealth outside of retirement accounts.
Each account has a different structure. Some defer taxes. Others eliminate them. Some just give you freedom to move without rules or penalties.
Knowing how these accounts work helps you understand not just how to grow your money, but how to access it and how to manage what you owe when you do.
Investing isn’t just about what you buy.
It’s about where you keep it too.
Need help with your financial planning? Let’s chat and talk more about how we can help elevate your financial situation! Book a call here.
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