Hey there!
In last week’s Boost, we covered how important taxes are to your returns. Start with knowing how taxes apply in your investment accounts.
You may have started your investing journey with a single, taxable brokerage account, but if you’re anything like me, your investing life has gotten complex quickly 🤯. Land that first job? Be responsible, set up that 401K (plus maybe a Roth 401K). Second job? New 401K, new Roth 401K. Also, rollover the first two 401Ks into an IRA and Roth IRA. That’s already five accounts. Get married? Now you’re managing double for the family. Have a kid? Say hi to custodial accounts and the 529. Set up an HSA with your insurance? Maybe you’re investing those funds too 👏.
What you need to know 🧠
All of these accounts fill a special need, so having multiple ones can be totally worth it.Today, we try to demystify these account types.
TL;DR: Blame the tax code!
Three types of accounts ✅
Taxable Accounts: Simple – you pay taxes.
- Individual Brokerage Account: Standard trading account. Taxes on gains and dividends.
- Custodial Account (UGMA/UTMA): Invest for your child 👶 🚀 without the restrictions of 529 plans, but you will pay taxes on gains and losses.
Non-Taxable: You contribute after-tax money. No tax on gains.
- Roth IRA: Contribute and invest post-tax funds. No tax on withdrawals after retirement.
- Roth 401(k): Same concept as a Roth IRA, but typically sponsored by your employer.
- Coverdell ESA & 529 Plan: Investing for education 🎓. Your post-tax contributions see tax-free growth and withdrawals, if used for schooling.
Tax-Advantaged Accounts: Save on taxes now but pay later.
- Traditional IRA: Deduct and invest the max contribution from your income. As you’re sipping retirement mojitos 🍹 , remember the tax bill on withdrawals.
- Rollover IRA: Switched jobs? This one's a haven for your old 401(k) funds.
- 401(k) & 403(b): Similar to an IRA, but typically sponsored by your employer. Also, limited investment options.
- SEP IRA & SIMPLE IRA: For our self-employed heroes and small business champs. Bigger contributions, more flexibility.
- HSA Investment Account: Triple tax benefit. Pre-tax dollars, tax-free profits, tax-free withdrawals if you use them for health care 🩺 expenses.
How Mezzi streamlines it all:
Feel overwhelming to manage it all? Rest assured, we’ve got you covered. Mezzi helps you:
- See all of family’s accounts in one place
- View accounts based on tax type
- Rename and group accounts
- Insights to take action to reduce your capital gains tax
- Optimize your allocation based on account type
And much more on the horizon!
