Welcome to the Personal Finance Club where we talk all things finance! This week, we’re diving right in with investing! Interested in investing, but don’t know where to start? You’ve come to the right place! Here, you’ll find a list of different accounts you can take part in, depending on what fits your financial situation.
Disclaimer: This is not financial advice. This is for educational purposes only.
High Yield Savings Accounts (HYSA)
Pro:
- Safe, stable returns
- Easy to access, move funds into/out of same bank
- Maintains value
Con:
- Inconsistent returns (i.e. percentage changes)
- Account limit (i.e. max of $5000)
- Low rate of return
Examples:
- Ally
- Marcus
- Varo
What is it? HYSA are essentially savings accounts with higher yield percentages, so you earn more interest relative to traditional, brick-and-mortar banks (i.e. Bank of America, Citibank, Chase, Wells Fargo, etc). HYSAs are great vehicle to park the cash that needs to be relatively easily accessible while maximizing the return, especially since these are lower risk.
Tax-Advantaged Retirement Accounts
Pros:
- Tax advantages
- Tax-deferred
- Tax-free withdrawals/gains
Cons:
- Withdraw penalties if before retiring age
- Withdrawing restrictions
- Account contribution limit
Examples:
- Roth IRA
- 401(k)
- HSA – Health Savings Account:
Tax-Advantaged Retirement Accounts – what a mouthful! Let’s dive right in! These accounts offer some kind of tax advantage; however, because these accounts have tax advantages, they also come with certain limitations.
Roth IRA: Using post-tax money to contribute, the money contributed can provide tax-free growth and tax-free withdrawals. The limitation: you can only contribute up to $6,000 per year. Also, if filing as Single, you have to make less than $140,000 per year to contribute to this account. The pro? You can contribute up to the tax day for that year. For example, the deadline to file your taxes for 2021 is April 18, 2022, you have until that day to contribute for the year of 2021.
401(k): You’re able to contribute with pre-tax money, lowering the amount you’ll actually be taxed on. The limitation: you can only contribute up to $20,500 per year. The best part of this is that if your employer provides a W-2, it is likely your employer has a benefit where they provide some sort of match. This will be different at every company.
Health Savings Account (HSA): This account is great, triple threat: pre-tax contributions, tax-free growth, and tax-free withdrawals. The limitation: you can only contribute up to $3,500 per year, your investment choices could be quite limited depending on where your HSA is parked, and you can only use the funds in this account for health-related expenses.
Non-Taxed Advantaged Accounts
Pros:
- Flexible/no restrictions on withdrawing
- No contribution limit
Cons:
- No tax advantages
- Tax-deferred,
- Tax free gains,
- Tax free withdrawal
Examples:
- Fidelity
- Vanguard
- E*Trade
- Robinhood
- TD Ameritrade
Non-Taxed Advantaged Accounts: contribute using post-tax money that could be taxed on the growth (capital gains) and withdrawals. The pro? No limitations on withdrawals – you can withdraw however and whenever your heart desires!
