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Investing 101: Different Types of Investment Accounts

hey there YouTube it's just a long

author of get money and we are

continuing our series on investing 101

this is the last on camera video that

I'm going to do I have a couple of

tutorial videos after the staff actually

help you open an investment account and

research your investments so I want you

to pat yourself on the back if you've

made it this far because let's be honest

investing is not the most exciting topic

on the planet and even though you asked

for this series so you really have no

one to blame but yourself

even though you asked for the series I'm

sure some of you have kind of dropped

off because you're like this investing

stuff is more boring than I thought I'd

rather watch videos of puppies which I

don't blame you but you know what if

you've made it this far you should

totally pat yourself on the back because

you are learning about something that it

can be really complicated and really

intimidating to get started with so

let's just get right to it in today's

video we are going to talk about the

different types of investment accounts

that you can and should open when you're

getting started with investing and the

first and most obvious one of those I

think is the 401k like this is the

investment account that you have at work

that your employer offers we've learned

about this before if you have a 401k

match you definitely want to take

advantage of that and it just makes it

really easy to get started with

investing I remember telling you that I

didn't even really realize I was an

investor but I was because I was saving

in a 401k and then my money grew and a

couple of years later I was like oh my

god I have all this money because my

401k match and it was amazing I realized

I was investing so the 401k is a really

simple easy way to get started with

investing because you just asked for

some paper work at your job but the

other cool thing about a 401k is it is

tax deductible so you can deduct from

your taxable income the savings that you

put in your 401k which means

theoretically you pay fewer taxes so if

you save $5,000 in your 401k and you

make $50,000 a year your taxable income

now becomes $45,000 a year so you're

going to be taxed on only $45,000 vs.

$50,000 now that's a very simple example

you'll have other tax breaks that will

lower your

taxable income even more maybe and that

this benefit isn't available to everyone

if you make over a certain amount you

might not qualify for it so this is a

great tax advantage that a lot of

retirement accounts offer this is

opposed to a taxable investment account

a taxable investment account is just a

regular old investment account no frills

you open it at Scottrade or I don't

think Scottrade exists anymore you open

at TD Ameritrade or fidelity or wherever

and it just there's no it's not a

retirement account it's an account in

which you can trade and take out your

investments whenever you want you might

pay a commission you might pay a

brokerage fee to do the deal you

basically pay taxes on any earnings you

have or make in that account so if you

buy you know 10 shares of General Motors

and you that it increases in value and

you you earn a dollar let's say for each

share so you make a 10 dollar profit

well you're gonna have to pay taxes on

that ten dollars now hopefully you're

working with much bigger earnings but

that's just a very simple example of how

taxable investment accounts are taxed

with a retirement account or a

tax-advantaged retirement account and

you don't have to worry about paying

taxes on those earnings just yet because

you can't even touch it until you're 65

or whenever you retire without paying a

penalty what if you do not have an

employer who offers a 401k though

individual retirement accounts

individual retirement accounts come in

two basic types they are also kind of

IRAs now if you don't live in the United

States

IRA means a very different thing but in

the u.s. IRAs typically mean individual

retirement accounts and you can either

get a traditional IRA or you can get a

Roth IRA both come up with tax

advantages but they come with very

different tax advantages so let's break

those down shall we

the tax advantage of the Roth IRA is

that it has tax free growth so this

basically means you don't get to deduct

the savings that you put in your IRA

from your taxable income the way you

would with a 401 K right you don't get

to deduct that you stuff to pay your

taxes on it as normal but the money that

grows in your

the wooden your stocks go up in value

and your investments go up in value that

money grows over time so the tax-free so

that when you take the money out of your

IRA or retirement you don't have to pay

taxes on the earnings and that is an

amazing deal it's why most personal

finance experts are like hell yes Roth

IRAs are the way to go but traditional

IRAs aren't bad either they basically

offered the same advantage as the 401k

does meaning you can deduct the savings

you put in the traditional IRA from your

taxable income now how do you decide

whether you should go for a Roth IRA or

a traditional IRA well the general rule

of thumb is if you are making more money

now than you think you will be making in

your 50 60 s whenever you retire you

should go with a traditional IRA because

you're gonna save on taxes now but if

you think that you're gonna make more

money in the future then you should go

with a Roth IRA because then you can

avoid paying taxes then you've already

paid the taxes on the savings in your

retirement account so when you withdraw

that retirement money you don't have to

worry about paying taxes on that on top

of what are the taxes you're already

paying now this is a very general rule

of thumb I personally think you can't go

wrong with just saving for retirement in

general but if you want to optimize I

would probably recommend a Roth IRA like

most personal finance experts will

because that tax-free growth is an

amazing deal now I have a traditional

IRA my husband has a Roth IRA and I also

have something called a SEP IRA a

self-employed IRA this is an individual

retirement account for people who like

me are self-employed I do not have an

employer to offer a 401k account so I

have an individual IRA that traditional

one but I also I had a couple of good

years and I was earning a lot of money

and I was actually maxing out my

traditional IRA because the max is 5500

that's how much you can put in every

year as of 2018 and I was going I was

earning enough money that I was able to

max that out and I still wanted to save

more of my work income so I opened a

self-employed IRA to save even more

money so if you work for your

and especially if you have a high income

SEP IRA is something that you want to

look into maybe even a solo 401k that is

another investment option and those are

specific options that you want to look

into if you're self-employed SEP IRA and

solo 401k solo 401k it's a little bit

more complicated there's a little bit

more paperwork but it allows you to

potentially save even more if you are

making a really good money so I did not

have a solo 401k but it did have a SEP

IRA there are also investment accounts

called 529 plans which let you save for

your kids education it's like a tuition

education based investment account now

when I was new to investing I didn't

know where to start I opened an

individual retirement account I also

have a taxable investment account but

why am I going to open a taxable

investment account before I have a tax

advantaged IRA it doesn't make any sense

like I'm going to need to save for

retirement anyway so I might as well

open an IRA and then if I have money

left over if I want to save for like a

medium-term goal then maybe I opened

that taxable investment account that's

actually how I saved for my home down

payment I knew that maybe five ten years

from now I was going to buy a home and

so I thought five or ten years you know

it's that's long enough to maybe be in

the stock market and I can wait out

those market Corrections so I opened a

taxable investment account and I saved

in there so those are the basic types of

investment accounts if you're new to

investing I would start with an

individual retirement account probably a

Roth IRA but just some kind of

tax-advantaged retirement account

whether its traditional or whether it's

Roth or even if it's a SEP IRA or

something like that I think it's a good

place to start and in the next couple of

videos I'm gonna show you guys how to

actually go online and open up one of

these accounts whenever you're ready and

I'm also going to leave you with a few

articles for further reading because I

really do think there's a lot more to

this that is hard to condense down and

these like five to ten minute videos so

you should totally start your research

here and then read a little bit more

about them check out those other videos

I hope this has helped you if you guys

have ideas for other videos theory

if you have any feedback be sure to

leave that in the comments below and I

will see you soon

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