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Ready, Set, Go(al)
Choosing where to invest your money is like picking your first tattoo. The stakes are high and all the options can be overwhelming. But don’t worry. Just like we wouldn’t let you get your ex’s name on your arm, we won’t leave you hanging with your money. So we’ve broken down a few common investment accounts that can help you live the life you want.
Together with
Pick the statements that best describe your money goals to see which accounts can help you reach them…
I want to go forever OOO one day.
I work for myself, but wanna make sure I can retire in style.
I’m trying to make money and make the world a better place.
I see education expenses in my future.
I wanna buy something big in the next five years.
I’ve got a long list of ex bosses (and all the 401(k)s).
Feel like you’ve got a lot of work to do?
Breathe. You don’t have to open every account at once. Since retirement is probably the most expensive goal on your list, it’s a good place to start. And if you’re still overwhelmed, look into automated tech that can make this whole investing thing even easier.
Robo-advisors (like Betterment) will build you a custom portfolio based on your age, how much you wanna invest, how comfy you are with risk, and what you plan to use your investment earnings for. All you have to do is set up automatic deposits and they do the heavy lifting.
Not sure when to start?
There’s truly no time like the present. Because the sooner you start, the more time your money has to grow and the more potential you have to earn. Because (drumroll, please…) compounding interest. Aka when your money earns money on itself and snowballs exponentially.
But, remember: Growth isn’t always guaranteed. Investing means taking on a certain amount of risk since the market moves in cycles. On the bright side: Stocks have bounced back from every major downturn in history. And then continued to climb. Investing consistently over time can make it easier to ride out the ups and downs.
One last thing to know...
Investing could help you owe Uncle Sam less come tax time. Example: You have until the tax filing deadline each year to open and fund an IRA, which could help you claim an extra deduction. Meanwhile, harvesting losses in your brokerage account (something Betterment can do for you automatically if you opt in) could help to reduce capital gains taxes for the year.
theSkimm
Investing involves decision-making. But not making those decisions is a costly money move in itself. And there are services out there that can help make the whole process easier. The first step is figuring out what you want your future to look like. Ready, set, go(al).
IRA is short for Individual Retirement Account. Outside of your 401(k), 403(b), or any other plan you may have through your employer, this is the best place to start putting money toward your post-work life.
There are two different kinds to know: traditional and Roth. Traditional IRAs could give you a tax break if you're able to deduct your contributions. The trade-off is that you'll pay income tax on your investment earnings when you withdraw. Oh, and you may have to pay penalties if you take any money out too soon. With a Roth IRA, there's no tax deduction. But you don’t have to pay taxes when you start making withdrawals in retirement. You’ve also gotta earn below a certain amount to qualify.
Psst...you can have both a Roth and traditional IRA if you’re eligible for each. But your combined contributions have to be lower than the IRS’s limit. For the 2021 tax year, that’s $6,000 ($7,000 if you’re over 50). Betterment’s got both.
IRAs
Self-employment has its perks. No daily commute, no cubicle, and no office dress code to worry about. But it also means missing out on the chance to save in an employer's retirement plan.
Enter: SEP IRAs. Short for Simplified Employee Pension, a SEP allows you to save money for post-work life and get some tax breaks along the way. You can make contributions as an employer and an employee (and if you run a business with employees, you can open SEP IRAs for them, too). For the 2021 tax year, the contribution limit is $58,000 or 25% of the employee's pay — whichever is lower.
You can get a deduction when you make a contribution, but you’ll pay taxes when you take the money out in retirement. Aaand withdrawing from your plan before age 59 ½ could trigger an early withdrawal penalty. Learn more (and see how you can open a SEP IRA online in minutes) at Betterment.
SEP IRAs
Socially responsible investments (SRI) offer a chance to do some good while building wealth. Typically, it means choosing investments according to ESG principles. Aka supporting companies or industries that keep environmental, social, and governance factors in mind and actively work to make a positive impact on the world.
The best part? You can customize your SRI approach based on what matters to you. For example, Betterment offers diversified portfolios centered on these themes:
Socially Responsible Investments
Climate impact. For anyone who’s into lowering carbon emissions and funding green initiatives.
Social impact. Gender diversity and minority empowerment ftw.
Broad impact. Basically, both of the above. Plus other ESG elements, like ethical labor management and greater board diversity.
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Psst...these portfolios are built using exchange-traded funds (ETFs) so you can get exposure to different companies, industries, and sectors with one vehicle.
Maybe you have kids. Maybe you're still thinking about it. Maybe you’re also thinking about heading back to school yourself. No matter what, a 529 account can help you save for college expenses. The funds can be used to cover:
529 Plans
You can also use 529 earnings to pay private tuition for primary or secondary school, up to $10K per year. Or to pay off up to $10K in qualified education loans. And even though there's no federal tax deduction for 529 plan contributions, that money grows tax-deferred and qualified withdrawals are 100% tax-free.
Tuition, fees, books, supplies, and equipment at eligible higher education institutions
Certain room and board expenses
Computers, equipment, software, and internet access for students enrolled in a post-secondary educational institution
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Standard brokerage accounts can help you build wealth no matter what you plan to use it for. There are no annual contribution limits. So it's up to you to decide how much to invest each year. But you also won’t get a deduction for any money you contribute. And instead of paying income tax on withdrawals, you’ll pay capital gains tax whenever you sell investments for a profit.
But there's a big silver lining. Brokerage accounts can offer more variety when it comes to what you can invest in. So, depending on where you open your account, you might be able to trade:
Investing in a brokerage account can help you leave your options open in a lot of ways. But the ball is very much in your court. If you'd rather pass that ball to someone else, you can open an account with Betterment and let them choose for ya.
Individual stocks
Bonds
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Standard Brokerage Accounts
Mutual funds
ETFs
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Cryptocurrency
Stock options
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Futures
Initial Public Offerings (IPOs)
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Got a job change planned? Considering an early retirement? While you're cleaning out your desk, don't forget to decide what to do with your 401(k).
You could leave it with your employer until you need the money. But that could mean paying high management fees along the way. Rolling the money over to your new company’s 401(k) or an IRA instead could save you money. (Rolling a 401(k) over to Betterment, for example, could mean 60% lower fees).
Pro tip: Call your plan admin and ask for a direct transfer to sidestep any tricky tax issues that can crop up when withdrawing money from a 401(k) and rolling it over into a new account yourself.
401(k) Rollovers
Your Guide to Investing, Smarter
Your Guide to Investing, Smarter
Psst…this paid placement is a general marketing offering and is not investment advice. Consider your personal situation and preferences before deciding to rollover. Please refer to our other disclosures and Form CRS for more information. Higher bond allocations in your portfolio decreases the percentage attributable to socially responsible ETFs.